MONTHLY ECONOMIC WATCH
Transcript of MONTHLY ECONOMIC WATCH
MONTHLY ECONOMIC WATCHNov 2021
Nov 2021First Capital Research 2
• Central Bank Issues New Rules on Conversion of Export Proceeds……………………...… 3
• Inflation……………………………………………………………………………………………… 4
• M2B & Sector Credit……………………………………………………………………………….. 8
• Reserves & Liquidity………………………………………………………………………............ 9
• Currency Movement…………………………………………………………………................... 10
• Government Securities……………………………………………………………….................. 11
• Finance Sector Rate Movement……………………………………………………………......… 14
• External Sector………………………………………………………………………………….….. 15
• Tourist Arrivals………………………………………………………………………………….….. 19
• Global Markets………………………………………………………………………………….….. 20
CONTENT BRIEFING
▪ The Monetary Board of the Central Bank issued new rules in respect of repatriation of export
proceeds into Sri Lanka and conversion of such export proceeds to Sri Lanka Rupees. The new
rules are applicable for both exporters of goods and services in Sri Lanka.
▪ The new rules require exporters to convert the residual (remaining balance of such export
proceeds received) into Sri Lanka Rupees, on or before the seventh (7th) day of the succeeding
month, upon meeting following authorized payments.
o Outward remittances in respect of current transactions.
o Withdrawal in foreign currency notes, as permitted.
o Debt servicing expenses and repayment of foreign currency loans.
o Purchases of goods and obtaining services including one-month commitments.
o Payments in respect of making investments in SLDBs in foreign currency up to 10% of the
export proceeds, so received.
▪ Accordingly, with the issuance of these rules, exporters are able to meet all the expenditure
relating to export of goods and services, out of their export proceeds.
CENTRAL BANK ISSUES NEW RULES ON CONVERSION OF EXPORT PROCEEDS
Nov 2021First Capital Research 3
Source: CBSL
4
CCPI FOR OCT 2021: MOM +1.9%, YOY +7.6%▪ MoM inflation increased by 1.9% with the
increase in expenditure value of Fooditems by 2.8% and the increase of Non-Food items by 1.5%.
▪ The YoY inflation increased to 7.6% in Oct2021. YoY inflation of Food group hasincreased to 12.8% in Oct 2021 from 10.0%in Sep 2021 while Non‐Food groupincreased to 5.4% from 3.8% in Sep 2021.
INFLATION – CCPI
4.0%4.1%
4.2%
3.0%
3.3%
4.1%
3.9%
4.5%5.2%
5.7%
6.0%
5.7%
7.6%
3.0% 3.0%
3.5%
2.7%2.6%
3.1% 3.0%3.2% 3.2%
3.7%
4.1%
5.0%
6.3%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Inflation YoY Core Inflation YoY
Source: Dept. Census and Statistics
First Capital Research Nov 2021
-230
-130
-30
70
170
270
370
Ch
an
ge
in
Va
lue
(L
KR
)
INFLATION ANALYSIS – CCPI-MOM
Food Category Inflation
Nov 2021First Capital Research 5
The CCPI index recorded an increase of 1.9%MoM contributed by the increase
in expenditure value of Food items by 0.91% and Non-Food items by 1.03%.
Within the Food items, increase in value changes were reported for Rice, Milk
Powder, Coconuts, Sea Fish, Limes and etc. Among Non-Food groups, increases in
value change were reported for the groups of Housing, Water, Electricity, Gas &
Other Fuels, Restaurant and Hotels, Furnishing Household Equipment & Routine
Household Maintenance, Clothing & Footwear and etc.
Non-Food Category Inflation
Source: Dept. Census and StatisticsSource: Dept. Census and Statistics
0.91% 1.03%
Food Non Food
0
75
150
225
300
375
450
Ch
an
ge
in
Va
lue
(L
KR
)
Inflation Analysis (YoY)
Nov 2021First Capital Research 6
The YoY inflation of CCPI for Oct was 7.6% and has increased relative to the
month of Sep. Food item prices have increased to 12.8%YoY in Oct 2021 from
10.0%YoY in Sep 2021 while the Non-Food item prices have increased to
5.4%YoY from 3.8%YoY in Sep 2021. The contribution from food category for YoY
inflation was 4.00% while the contribution of Non-Food items stood at 3.68%
mainly due to the increase in Restaurant & Hotels, Transport, Housing, Water,
Electricity, Gas & Other Fuels, Health, Furnishing Household Equipment,
Clothing and Footwear, and etc.
INFLATION ANALYSIS – CCPI-YOY
Source: Dept. Census and StatisticsSource: Dept. Census and Statistics
Non-Food Category Inflation
4.00% 3.68%
Food Non Food
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
All Item Food Non Food
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
7
INFLATION – NCPINCPI FOR SEP 2021: DECREASED TO 6.2%YOY▪ NCPI for Sep 2021 decreased to 6.2%
compared to Aug 2021.
▪ Decline in inflation was mainly driven by
Food commodities while Non-Food
commodities remained unchanged
relative to last month. YoY Food inflation
decreased from 11.1% in Aug 2021 to
10.0% in Sep 2021 while Non-Food
inflation stayed at 3.0%YoY from Aug
2021 to Sep 2021.Source: Dept. Census and Statistics
6.4%
5.5%5.2%
4.6%
3.7%
4.2%
5.1%
5.5%
6.1%6.1%
6.8%6.7% 6.2%
4.8%
4.5% 4.5% 4.7%
4.2% 4.1% 4.3%
4.1%
4.2% 4.1%
4.4%
4.7% 4.7%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
NCPI YoY Core NCPI YoY
Nov 2021First Capital Research
M2B AND CREDIT GROWTH
M2b Growth – Sep 2021 MoM -0.2%, YoY +18.2%, YTD +11.5%
Nov 2021First Capital Research 8
Private sector credit improved by LKR 29.1Bn in Sep 2021 sustaining the positive growth momentum for the 14th
consecutive month. State credit reflected a net borrowing of LKR 96.3Bn.
State Credit & Private Credit – Sep 2021 Private Credit MoM +0.4%, YoY +13.8%, YTD +10.6%
2.05%
1.65%
1.32%
2.96%
1.35%1.24%
1.94%
1.10%0.86%
1.31%1.37%
2.04%
-0.24%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
8,000
8,500
9,000
9,500
10,000
10,500
11,000
LK
R ‘
Bn
M2b MoM Growth
Source: CBSL
195266
107 179266
57
230
-45
78 190328
165
96
8759
39 77
26
79112
58
5683
77
134
29
LK
R '
Bn
State Credit Private CreditSource: CBSL
LIQUIDITY & RESERVES
Nov 2021First Capital Research 9
▪ Market liquidity remained negative and witnessed a
continuous deterioration during Oct 2021 despite
frequent injection of liquidity by CBSL via term reverse
repos and increased CBSL holdings of Government
Securities.
Source: CBSL
▪ Foreign Reserves declined to USD 2.3Bn in Oct 2021
relative to USD 2.6Bn in Sep 2021,amidst the inadequate
inflow of foreign funds.
Source: CBSL
-250.0
-200.0
-150.0
-100.0
-50.0
0.0
50.0
100.0
150.0
200.0
250.0
300.0
Ma
rke
t L
iqu
idit
y (
LK
R '
Bn
)
5,8
59
5,5
55
5,6
65
4,8
15
4,5
56
4,0
55
4,4
77
4,0
33
4,0
60
2,8
34
3,5
51
2,5
81
2,2
68
CURRENCY MOVEMENTUSD:LKR Movement Sri Lankan Rupee vs Global Currencies
First Capital Research 10
Source: CBSL
Oc
t 2
02
1Y
TD
20
21
Source: CBSL
Nov 2021
180.0
185.0
190.0
195.0
200.0
205.0
-5.7%
-4.1%
-3.5%
-2.2%
-1.5%
-0.9%
-0.4%
0.6%
-14.0% -9.0% -4.0% 1.0% 6.0%
Aus Dollar
Can Dollar
UK Pound
China Renminbi
Euro
US Dollar
India Rupee
Japan Yen
-11.6%
-10.5%
-9.4%
-8.3%
-6.0%
-6.0%
-2.7%
1.7%
-14.0% -9.0% -4.0% 1.0% 6.0%
Can Dollar
China Renminbi
UK Pound
US Dollar
India Rupee
Aus Dollar
Euro
Japan Yen
Net Settlement Oct 2021 YTD
Maturities 442,524 2,472,265
New Issues 362,024 2,035,509
Excess/(Deficit) (80,500) (436,756)
CBSL Holdings of Gov. Securities YTD
As at End Oct 2021 1,466,842
As at End Sep 2021 1,332,206
Increase/ (Decrease) 134,636 741,656
GOVERNMENT SECURITIES – NEW ISSUES
Nov 2021First Capital Research 11
Bill and Bond auctions for Oct 2021
Week EndingBills
('Mn)
Bonds
('Mn)Total
1-Oct-21 31,179 17,400 48,579
8-Oct-21 47,438 47,438
15-Oct-21 50,416 84,591 135,007
22-Oct-21 74,500 74,500
29-Oct-21 56,500 56,500
Total Issued 362,024
CBSL HOLDINGS OF GOV. SECURITIES…
Nov 2021First Capital Research 12
…increased by LKR 134.6Bn in Oct 2021
-200
-150
-100
-50
0
50
100
150
200
250
0
200
400
600
800
1000
1200
1400
1600
Liq
uid
ity (L
KR
‘Bn
)C
BS
L H
old
ing
s (
LK
R ‘
Bn
)
Excess Liquidity CBSL Holdings of Gov. SecuritiesSource: CBSL
Tenure 29-Oct 30-SepChange
(bps) 30-JunChange
(bps)
During the month of Oct, the secondary bond market yield curve shifted upwards amidst the mounting pressure on yields
quoted by the market participants despite the lackluster performance witnessed for the most part of the month. In the midst of
growing uncertainty and negative liquidity position, the acceptance of two out of four bill auctions and one out of two bond
auctions held during the month of Oct remained lower than the total offered amount. Yields of short tenors increased by 65-
147bps, mid tenors by 82-170bps and long tenors by 133-155bps.
Source: First Capital Research
Interest Rate Change (bps)
TREASURY BILLS AND BONDS – OCT ‘21
Nov 2021First Capital Research 13
Source: First Capital Research
4.5%
5.5%
6.5%
7.5%
8.5%
9.5%
10.5%
11.5%
12.5%29-Oct 30-Sep 30-Jun
3M 7.80% 6.95% 85 5.10% 185
6M 8.38% 7.05% 133 5.20% 185
1 Yr 8.65% 7.18% 147 5.40% 178
2 Yrs 9.08% 7.90% 118 6.15% 175
3 Yrs 9.25% 8.60% 65 6.70% 190
4 Yrs 9.95% 9.13% 82 7.15% 198
5 Yrs 10.50% 9.40% 110 7.40% 200
6 Yrs 11.10% 9.60% 150 7.65% 195
7 Yrs 11.55% 9.85% 170 7.95% 190
8 Yrs 11.60% 10.10% 150 8.15% 195
10 Yrs 11.80% 10.35% 145 8.25% 210
12 Yrs 11.88% 10.45% 143 8.40% 205
15 Yrs 12.10% 10.55% 155 8.55% 200
20 Yrs 12.23% 10.90% 133 8.78% 212
FINANCE SECTOR RATE MOVEMENTS
AWPR vs AWDR Interest Spread
Nov 2021First Capital Research 14
Source: CBSL Source: CBSL
4.00%
4.50%
5.00%
5.50%
6.00%
6.50%
7.00%
7.50%
8.00%
8.50%
AWPR AWDR
-0.38%-0.18%
0.03%0.32%
0.40%0.55%0.79%0.68%
0.95%
0.99%1.19%1.71%
3.03%
1,0
05
98
8
65
6
28
2
58
7
89
4
1,0
85
94
7
1,0
00
84
8
81
9
96
4
92
4
95
2
1,0
94
81
8 89
2 1,0
07 1,1
04
1,1
00
200
300
400
500
600
700
800
900
1,000
1,100
1,200
USD 'MN
2020 2021
Exports for Aug recorded an increase of 16.2%YoY to USD 1.1Bn while the growth was led by improvements in almost all the subcategories
namely, industrial, agricultural and mineral exports. Earnings from the export of industrial goods recorded an increase by 17.5%YoY in Aug
2021, led by textiles and garments, petroleum products, rubber products, food, beverages and tobacco, and machinery and mechanical
appliances. Exports of garments to all major markets increased and earnings from the petroleum products improved as a result of the increase
in prices of aviation and bunker fuel and the increase in volumes of bunker fuel exports. Total earnings from the export of agricultural goods in
Aug 2021 increased by 10.9% mainly due to the increase in export earnings from tea, coconut (both kernel and non-kernel products), minor
agricultural products (mainly sesamum seeds and areca nuts), seafood and rubber. Total earnings from the export of minerals in Aug 2021
increased by 93.3% mainly due to the increased earnings from earths and stone, ores, slag and ash.
EXTERNAL SECTOR – AUG 21 – EXPORTS
Nov 2021First Capital Research 15
Category 2020
(USD ‘Mn)
2021
(USD ‘Mn)
Change
(%)
Industrial Exports
- Aug
- YTD
729.0
4,905.4
856.8
6093.2
17.5
24.2
Agricultural
- Aug
- YTD
215.9
1,516.0
239.4
1,765.5
10.9
16.5
Mineral Exports
- Aug
- YTD
1.6
14.3
3.1
30.7
93.3
115.3
Total
- Aug
- YTD
947.2
6,445.0
1,100.4
7,903.0
16.2
22.6Source: CBSL
1,7
35
1,5
62
1,2
05
1,1
23
99
4
1,0
56
1,2
94
1,2
89
1,5
25
1,3
63
1,3
84 1
,52
7
1,5
92
1,5
24
1,9
26
1,7
07
1,6
07
1,6
59
1,7
10
1,6
87
600
800
1,000
1,200
1,400
1,600
1,800
2,000
USD 'MN
2020 2021
Despite the continuation of the import restriction measures, import expenditure increased by 30.8%YoY to USD 1.3Bn in Aug 2021
as well driven by the increase across all main categories of consumer goods, intermediate goods, and investment goods.
Expenditure on the importation of consumer goods in Aug 2021 increased by 41.8% with the increase in expenditure on food and
beverages led by vegetables (mainly lentils & onions), dairy products, sea food, spices, etc. Expenditure on importation of
intermediate goods increased by 27.6% with the rise in import expenditure on fuel and textiles and textile articles. Value of
investment goods increased with substantial increases in almost every subcategory under the three types of investment goods,
namely, machinery and equipment, building material and transport equipment and others.
Category2020
(USD ‘Mn)
2021
(USD ‘Mn)
Change
(%)
Consumer goods
- Aug
- YTD
228.6
2,300.3
324.3
2,579.3
41.8
12.1
Intermediate
- Aug
- YTD
791.3
5,692.4
1,010.0
7,942.427.6
39.5
Investment goods
- Aug
- YTD
269.0
2,253.2
351.7
2,882.3
30.8
27.9
Total
- Aug
- YTD
1,289.1
10,257.4
1,686.7
13,411.5
30.8
30.7
EXTERNAL SECTOR – AUG 21 – IMPORTS
Nov 2021First Capital Research 16Source: CBSL
EXTERNAL SECTOR – AUG 21
Nov 2021First Capital Research 17
-342
-525
-515
-565
-563
-668
-572
-832
-889
-716
-652
-606
-587
-1,000 -900 -800 -700 -600 -500 -400 -300 -200 -100 0
Balance of Trade
Source: Central Bank
Nov 2021First Capital Research 18
Aug
USD ‘Mn2020 2021
Change
(%)
Trade Balance -342 -586
Earnings from
Tourism0 7 N/A
Workers’
Remittances664 447 -32.8
YTD
USD ‘Mn2020 2021
Change
(%)
Trade Balance -3,812 -5,509
Earnings from
Tourism682 33 -95.2
Workers’
Remittances4,346 4,224 -2.8
Worker Remittances declined to USD 447.0Mn (-32.8%YoY). Earnings from
Tourism for Aug 21 improved to USD 7.0Mn although Jan-Aug 21 declined by -95.2
YoY%.
BoP for Jan-Aug 21 recorded at USD -2.4Bn compared to Jan-Jul 21 amount of
USD -2.8Bn recording a net inflow of USD 0.4Bn for the month of Aug 2021.U
SD
‘M
n
BALANCE OF PAYMENT DEFICIT INCREASED YOY IN AUG 2021
US
D ‘
Mn
Source: CBSL
Source: CBSL
Source: CBSL
-722
-2,423
-3000
-2500
-2000
-1500
-1000
-500
0
Jan-Aug 20 Jan-Aug 21
-342
-586
0 7
664
447
-800
-600
-400
-200
0
200
400
600
800
Aug-20 Aug-21
Trade Balance Earnings from Tourism Workers’ Remittances
Total = 664 Total = 454
TOURIST ARRIVALS – OCT 2021
Nov 2021First Capital Research 19
The total number of tourist arrivals to Sri Lanka during Oct 2021 were 22,771. A notable improvement in
arrivals was observed during the month of Oct, as a result of the gradual curbing of Covid-19 and the
reopening of borders which supported the gradual revival in tourism activities. The largest source
markets recorded for the month of Oct were India, United Kingdom, Pakistan, Russia and Germany.
[22,771 – OCT, YTD 60,695 – MoM UP 68.1%]
0
50
100
150
200
250
300
'00
0 Tourist Arrivals
2019 2020 2021 Source: SLTDA
VN Index
S&P 500
Dow Jones
Euro Stoxx 50
KSE100
FTSE 100 Index
Nifty 50 Index
Nikkei 225
GLOBAL MARKET
Nov 2021First Capital Research 20
Source: Investing.com
Economists Boost U.S. Inflation Forecasts Through the End of 2022Economists are ratcheting up their U.S. inflation forecasts through2022 as supply chain constraints persist and price pressures broadenout to categories like shelter and energy. The consumer price index willrise 5.8% at the end of the fourth quarter from a year earlier, above the5.5% estimated a month ago, according to the median forecast of 47economists in Bloomberg’s latest monthly survey. However, some ofthe projections were submitted prior to Wednesday’s October CPI data,which showed the biggest annual gain since 1990.
UK Covid rates are now falling rapidly despite dire warnings for the winterThe U.K. has had the unenviable title of having one of the worst Covid-19 rates in the world, with cases soaring in recent months prompting dire warnings from experts and officials over mounting pressure on hospitals and excess deaths. But the latest data from the U.K. shows that the country could be recovering from its latest wave of cases, with experts saying Britain has just seen its biggest weekly drop in the number of new Covid cases in 2021.
APEC leaders vow to tackle economic recovery, COVID-19, climateLeaders of the Asia-Pacific Economic Cooperation (APEC) forum vowed to address economic recovery in the region by shoring up supply chains, tackling labour issues and continuing to respond to the COVID-19 pandemic. The leaders of the 21-member grouping pledged to work together to address climate and environmental challenges. APEC is the last multi-lateral meeting of the year that comes after a flurry of gatherings.
Disclaimer
This Review is prepared and issued by First Capital Holdings PLC based oninformation in the public domain, internally developed and other sources,believed to be correct. Although all reasonable care has been taken to ensurethe contents of the Review are accurate, First Capital Holdings PLC and/or itsDirectors, employees, are not responsible for the accuracy, usefulness,reliability of same. First Capital Holdings PLC may act as a Broker in theinvestments which are the subject of this document or related investmentsand may have acted on or used the information contained in this document,or the research or analysis on which it is based, before its publication. FirstCapital Holdings PLC and/or a connected person or associated person mayalso have a position or be otherwise interested in the investments referred toin this document. This is not an offer to sell or buy the investments referred toin this document. This Review may contain data which are inaccurate andunreliable. You hereby waive irrevocably any rights or remedies in law orequity you have or may have against First Capital Holdings PLC with respect tothe Review and agree to indemnify and hold First Capital Holdings PLC and/orits principal, their respective directors and employees harmless to the fullestextent allowed by law regarding all matters related to your use of this Review.No part of this document may be reproduced, distributed or published inwhole or in part by any means to any other person for any purpose withoutprior permission.
21Oct 2021 FIRST CAPITAL RESEARCH
FIRST CAPITAL RESEARCHOct 2021 22