Market Update

Monetary Policy Review

Market Update – 01.06.2023

 CBSL turns dovish, cuts rates by 250bps, giving room to support
recovery
• CBSL cut its policy rates in nearly three years, with Standing CBSL cuts rates by 250bps
Deposit Facility Rate (SDFR) and the Standing Lending Facility 20
Rate (SLFR) of the Central Bank reducing by 250bps to 13% and 15
14% respectively.

Rates (%)
10

5
• The Board arrived at this decision with a view to easing monetary
0
conditions in line with the faster than expected slowing of Jan-2018 Jan-2019 Jan-2020 Jan-2021 Jan-2022 Jan-2023
inflation thereby giving room to support the country’s economic
SDF SLF
recovery.

• We expect the inflation to decelerate considerably over the Inflation to decline to single digit levels
period, likely to single digit levels on the back of improved food 80
supply, softening of commodity prices, higher base effect. Price
60
levels should drop even further due to recent appreciation of LKR
(LKR appreciated by 24% YTD) in our view.

CCPI
40

20
• We expect the import bill to see a gradual increase specially with
0
the large appreciation of the LKR and together with softer rates, Dec-19 May-20 Oct-20 Mar-21 Aug-21 Jan-22 Jun-22 Nov-22 Apr-23
should reverse the fall in private sector credit. Inflation (CCPI)

Market Update – 01.06.2023

 CBSL turns dovish, cuts rates by 250bps, giving room to support
recovery

• Economy should thus see a sharp recovery on the back of drop-in Rates to drop down further post DDR
rates, specially with rates declining sharply amid finalizing of DDR 35
30
(domestic debt restructuring). Improved consumption helped by 25
higher imports, relaxed restrictions, and rebound in private 20
15
sector credit should further support the resurgence in our view. 10
5
• We see Sri Lanka’s economy recovering and returning to positive 0
Dec-18 Jun-19 Dec-19 Jun-20 Dec-20 Jun-21 Dec-21 Jun-22 Dec-22
territory by next year specially with the endorsement by IMF AWPLR 3M TB Rate 182 Tbill rate 365 Tbill
help unlocking more funds by other multilateral agencies(WB,
ADB), improved fiscal position, renewed investor interest and Private sector credit to see some reversal
advances in debt talks eventually help easing balance of payment 600,000 30%
situation. Sri Lanka is estimated to have exceeded USD3Bn of 25%
450,000
reserves by now (including Chinese SWAP of USD 1.4Bn ), a clear 20%
positive on the external front. Rising worker remittances and 300,000
15%
tourism should also help ease balance-of-payments constraints in 150,000
10%
our view. 0 5%
Feb'22 Apr'22 June'22 Aug'22 Oct'22 Dec'22 Feb'23
-150,000 0%
Disbursed for the month to Pvt sector LKR Bn (LHS) AWPLR (RHS)

Market Update – 01.06.2023

 2,000.00
4,000.00
6,000.00
8,000.00

0.00
10,000.00
12,000.00
Dec-19 14,000.00

Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
Jan-21
Feb-21
Mar-21
Apr-21

ASPI(LHS)
May-21
Jun-21
Jul-21
Declining rates to boost activities in CSE

Aug-21
Sep-21
CCPI YoY (RHS)

Market Update – 01.06.2023

Oct-21
Nov-21
Dec-21
Jan-22
Feb-22
3M Bills (RHS)

Mar-22
Apr-22
May-22
Jun-22
Jul-22
Aug-22
Sep-22
Oct-22
Nov-22
Dec-22
Jan-23
Feb-23
Mar-23
Apr-23
May-23
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
 ASPI at all time low, signaling value

25.0 23.3
20.8
20.0
16.3
15.3
15.0 13.9
PE (x)

10.0 8.5
5.3
5.0
1.9

-
Sri Lanka Pakistan Philippines India Thailand China Malaysia Taiwan

4.0
3.4

3.0
PBV (X)

2.0
2.0
1.6 1.5
1.3
0.9 0.9
1.0 0.7

-
Sri Lanka Pakistan Philippines India Thailand China Malaysia Taiwan
Market Update – 01.06.2023
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Market Update – 01.06.2023