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Monday June 3rd, 2024

Central bank cuts Sri Lanka 3-month deposit rate 1.7-pct under new price controls

ECONOMYNEXT- Sri Lanka’s central bank on Friday ordered a cut of 1.71 percent on 3-month deposits under its controversial price control program to stop depositors from getting a market based interest rate.

The central bank said maximum rates banks should pay for savings deposits is 7.0 percent for the September quarter, down from 7.5 in the June quarter.
 
The rate for 3-month deposits is 8.33 percent, sharply down from 10.04 percent in the previous quarter.
 
This is based on the reference rate of 8.83 percent of the weighted average yield rate of 12-month Treasury bills, down from 10.54 percent previously.
 
The one year fixed deposit rate has been controlled at 9.83 percent, down from 11.54 percent in the previous quarter.
 
Sri Lanka’s rupee collapsed from 153 to 182 through 2018 as the central bank printed money to control market interest rates with printed money, destroying real incomes and savings of the people, and putting foreign investors, in bonds – who did not face exchange controls –  into flight.
 
The deposit rates are being cut as the altered price structure of the country from depreciation is gradually feeding into the broader economy after liquidity shortages ended.
 
At non-bank financial companies, the interest rate for savings is now 7.5 percent and for 1-year fixed deposits, it is 11.08 percent.
 
Banks and finance companies may offer 50 basis points more for children’s and senior citizen’s savings accounts.
 
In April the central bank linked savings deposit rates to to the lower end of the policy rate and fixed deposits to the twelve month Treasury Bill average weighted yields rate.
 
The new price controls were brought at end-April. It not clear whether banks actively colluded with the move and regulatory capture is involved.
 
However depositors will effectively subsidize banks which have seen a spike in bad loans after currency collapse and monetary instability that came from the attempt to control policy rates and exchange rates at the same time.
 
Former Central Bank Deputy Governor W. A. Wijewardena, a classical style economist, expressed sadness at the move.
 
"An unwise policy; what’s to be done is to take measures to narrow interest margins which stand at around 4-6% now," Wijewardena said in a twitter.com message.
 
"Forcing banks to cut deposit rates w/out curtailing lending rates will widen the margins&not help reduce lending rates which CB wants them to do; poor depositors."
 
The central bank however cut the reserve ratio, which worsens inefficiency and widens margins, in the one good outcome during the 2018 currency crisis.
 
At the start of June Central Bank Governor Indrajit Coomaraswamy said that lending rates were falling slower than expected, and warned that he may also bring controls to lending rates.
 
According to classical economists when the state makes one interventions, it is not unusual to bring two other controls in an attempt to mitigate its fallout.
 
The current administration economic policy framework has been characterized by monetary instability and price controls from the first quarter of 2015. (Colombo/June28/2019- Jul03 9:05am corrected 3-month deposit rate)

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Water levels rising in Sri Lanka Kalu, Nilwala river basins: Irrigation Department

Sri Lanka Navy assisting in rescue operations (Pic courtesy SL Navy)

ECONOMYNEXT – Sri Lanka’s Irrigation Department has issued warnings that water levels in the Kalu and Nilwala river basins are rising and major flooding is possible due to the continuous rain. People living in close proximity are advised to take precautions.

“There is a high possibility of slowly increasing prevailing flood lowline areas of Kiriella, Millaniya, Ingiriya, Horana, Dodangoda, Bulathsinhala, Palinda Nuwara and Madurawala D/S divisions of Ratnapura and Kalutara Districts, up to next 48 hours,” it said issuing a warning.

“In addition, flood situation prevailing at upstream lowline areas of Ratnapura district will further be prevailing with a slight decrease.

“The residents and vehicle drivers running through those area are requested to pay high attention in this regard.

“Disaster Management Authorities are requested to take adequate precautions in this regard.”

The island is in the midst of south western monsoon.

DMC reported that 11,864 people belonging to 3,727 families have been affected due to the weather in Rathnapura, Kegalle, Kilinochchi, Jaffna, Mullaitivu, Kalutara, Gampaha, Colombo, Galle, Matara, Hambantota, Puttalam, Kurunegala, Kandy, Nuwara Eliya, Anuradhapura, Polonnaruwa, Badulla, Moneragala, and Trincomalee districts.

Meanwhile, the Meteorology Department stated that showers are expected on most parts of the island today.(Colombo/June3/2024)

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UNP gen secy defends call for postponing Sri Lanka poll, claims opposition silent

The UNP party headquarters in Pitakotte/EconomyNext

ECONOMYNEXT — United National Party (UNP) General Secretary Palitha Range Bandara has defended his call for postponing Sri Lanka’s presidential election by two years, claiming that his proposal was not undemocratic nor unconstitutional.

Speaking to reporters at the UNP headquarters Monday June 03 morning, Bandara also claimed that neither opposition leader Sajith Premadasa nor National People’s Power (NPP) leader Anura Kumara Dissanayake have spoken against his proposal.

“I have made no statement that’s undemocratic. My statement was in line with provisions of the constitution,” the former UNP parliamentarian said.

He quoted Section 86 of Chapter XIII of the constitution which says: “The President may, subject to the provisions of Article 85, submit to the People by Referendum any matter which in the opinion of the President is of national importance.”

Sections 87.1, 87.2 also elaborates on the matter and describes the parliament’s role, said Bandara.

“I spoke of a referendum and parliament’s duty. Neither of this is antidemocratic or unconstitutional. As per the constitution, priority should be given to ensuring people’s right to life,” he said.

“Some parties may be against what I proposed. They may criticse me. But what I ask them is to come to one position as political parties and make a statement on whether they’re ready to continue the ongoing economic programme,” he added.

Bandara claimed that, though thee has been much criticism of his proposal for a postponement of the presidential election, President Wickremesinghe’s rivals Premadasa and Dissanayake have yet to remark on the matter.

“I suggested that [Premadasa] make this proposal in parliament and for [Dissanayake] to second it. But I don’t see that either Premadasa nor Dissanayake is opposed to it. To date, I have not seen nor heard either of them utter a word against this. I believe they have no objection to my proposal which was made for the betterment of the country,” he said. (Colombo/Jun03/2024)

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300 of 100,000 trees in Colombo considered high risk: state minister

ECONOMYNEXT – Trees in Sri Lanka’s capital Colombo are being monitored by the municipal council, Army and Civil Defense Force as the severe weather conditions continue, State Minister for Defense Premitha Bandara Tennakoon said.

“Within the Colombo Municipal Council city limits, there are 100,000 trees. Of these, around 300 are considered high risk,” Tennakoon told reporters at a media conference to raise awareness about the current disaster management situation.

Not all trees required to be cut down he said. “We can trim some of the branches and retain them.”

The problem was that buildings in the vicinity of the tree had cut branches on one side, causing it to become unbalanced, the minister said.

New laws would be brought in so provincial/municipal institutions could strengthen enforcement of building codes.

“We don’t have a single institution that can issue a warning about a tree. Not one to tell us what trees can or cannot be planted near a road.

“Trees should be suitable for the area. Some trees have roots that spread and damage roads, buildings. When the roots can’t go deep, they tend to topple over.

“Now Environment Day is coming up, and anyone can go plant a tree by the road. We have to take a decision about this. We have to enforce laws strongly in future.” (Colombo/June3/2024)

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