A month with a mild recovery
- The activities in the economy, especially the industry and services sector, improved marginally in May. However, the economy was still operating with excess capacity.
- CSE resumed trading on 11th May. ASPI rose 6% during the month, more as a correction from the steep fall witnessed earlier as investors picked up undervalued stocks. Foreign participation in the equities was mild and foreigners were net sellers.
- Data indicates the CCPI has declined to 4% in May, which is now on the lower bound of the CBSL’s inflation target.
- After almost 4 months of consecutive foreign capital outflows, in the last week of May debt market reported its first major weekly inflow. Rupee demonstrated a steady appreciation of about 4% throughout the course of the month helped by weaker imports. However, the reserve position deteriorated by USD 716 Bn mainly as a result of foreign currency loan payments.
- Higher excess liquidity levels that prevailed during the previous month started to gradually decline throughout May. Money supply decreased by nearly LKR 22 Bn mainly on account of maturing long-term reverse repos issued in April and first half of May. Policy rate cut by the CBSL further eased the interest rates in the money markets.
- The long-term rates also declined but, the spread between T-bill and AWPR widened marginally and was still higher than the pre-crisis level indicating the risk appetite of banks had not improved despite the efforts by the CBSL to maintain excess liquidity in the money markets.
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