June 2020

Recovery continues

Highlights

  • The activities in the economy, especially the industry and services sector, further improved in June as evident by increasing power demand which is almost on par with June 2019 average.
  • Sri Lanka achieved a trade surplus in June because of the import controls, helped by modest level of exports (USD 1.02 Bn) almost on par with June last year.
  • In the first two weeks of June, excess liquidity gradually started to build up and the CBSL’s SRR cut (200 bps) on 16th caused the outstanding overnight market liquidity to spike to LKR 196 Bn immediately.
  • Rupee started appreciating in the first half of the month, which helped the CBSL to accumulate forex reserve. But subsequent to the SRR cut rupee gradually depreciated which was later moderated by the CBSL intervention.
  • Defying the earlier expectations of modest inflation during the aftermath of COVID-19 pandemic, the data indicates the CCPI has declined to 3.9% (Y-o-Y) amidst falling aggregate demand in June, which is now below the lower bound of the CBSL’s inflation target.
  • The SRR cut and strengthening of rupee triggered a foreign outflow close to LKR 2 Bn in the last two weeks of June.
  • The reserve position improved by USD 193 Mn in June mainly as a result of increase in foreign currency reserves (USD 427 Mn) owing to rupee-dollar swap and purchase of dollars from the forex market.

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