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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » To prevent crisis, raise domestic rates

To prevent crisis, raise domestic rates

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1To prevent crisis, raise domestic rates Empty To prevent crisis, raise domestic rates Mon Sep 02, 2013 1:21 am

salt

salt
Vice President - Equity Analytics
Vice President - Equity Analytics
Read what a veteran Central Banker, WA Wijewardena has written about the outlook of LKR.

The ominous Black Swan has hit India, bringing enormous risks to that country today. Sri Lanka should avoid the inevitable Black Swan Event by shedding its high growth objective for the time being by raising domestic interest rates and saving its currency.

http://www.ft.lk/2013/09/02/ominous-black-swan-hits-india-is-sri-lanka-spared/

traderathome

traderathome
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Thanks Salt Smile

Chinwi

Chinwi
Associate Director - Equity Analytics
Associate Director - Equity Analytics
Going down Indian rupee means more and more affordable imports from India.

I think they have to impose further direct / indirect means to curtail import demands.

If they cannot control outflow first they have to stop next rate cut. Due to emerging situation, I feel they will not go for the next cut.

Somehow, I think our domestic interest rates are still at higher end compared to many other countries.

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
Delay overall rate cut or  they can impose restrictions to target importation from India like they already did on Vehicles .


@Chinwi wrote:Going down Indian rupee means more and more affordable imports from India.

I think they have to impose further direct / indirect means to curtail import demands.

If they cannot control outflow first they have to stop next rate cut. Due to emerging situation, I feel they will not go for the next cut.

Somehow, I think our domestic interest rates are still at higher end compared to many other countries.

VISA


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
what about deprecating LKR and built up USD reserves.

salt

salt
Vice President - Equity Analytics
Vice President - Equity Analytics
Not only INR, all major Asian currencies are going down making imports are cheap

can somebody tell us figures
Our official reserves are about USD 6+billion and foreign holding of LKR denominated debt is about USD 3.5 billion.

Terrible equation!

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
Yes several asian currencies depreciated but we need to mainly target where the big imports can come. India and Japan for example ( that too mainly cars)

To mess with overall interest rates to tackle independent but isolated issues might jeopardize balance between internal growth.

@salt wrote:Not only INR, all major Asian currencies are going down making imports are cheap

can somebody tell us figures
Our official reserves are about USD 6+billion  and foreign holding of LKR denominated debt is about USD 3.5 billion.

Terrible equation!

salt

salt
Vice President - Equity Analytics
Vice President - Equity Analytics
Interest rates is the only policy tool in central bank's hand. it is the key & most effective tool.

Isolated issues... ? well, time will tell us whether it is really
Its a global problem.
May people have expressed fear that this may lead to a panic of nature of Asian financial crisis... that's why some banks has taken efforts to raise rates...

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
In Sri Lanka? Which ones?

@salt wrote: that's why some banks has taken efforts to raise rates...

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@salt wrote:Read what a veteran Central Banker, WA Wijewardena has written about the outlook of LKR.

The ominous Black Swan has hit India, bringing enormous risks to that country today. Sri Lanka should avoid the inevitable Black Swan Event by shedding its high growth objective for the time being by raising domestic interest rates and saving its currency.

http://www.ft.lk/2013/09/02/ominous-black-swan-hits-india-is-sri-lanka-spared/
With all due respect to veteran Central Banker WA Wijewardena, what is happening in India (in my humble opinion) is not a Black Swan event.
A black swan event is a totally unexpected phenomenon which comes out of the blue.
When the Fed went into the QE program, everyone knew that it would end one day. it was not going to be forever.
Please listen to Interview on Bloomberg on 29th August 2013 with Jagdish Bhagwati, Professor of Finance & Economics at Columbia University, New York. He is an India Expert who was a classmate of Manmohan Singh at Cambridge University.    

http://bloom.bg/14aNJZy


Veteran Banker WA Wijewardena points out some very important facts in his article. we have to deal with the unholy trinity (BOP/ Current Account deficits), Interest rate & exchange rate.
we have to do a delicate balancing act.
I have heard that Interest rate cut is coming soon. Cabraal's mandate is to spur GDP Growth.
We simply cannot afford to allow the Rupee to devalue / depreciate. (think debt repayments, crude oil). We cannot afford imported Inflation which is already high. people in the villages are buying milk powder by the teaspoon.we have to cut down / discourage unneccesary imports (increase margin & duty). we can support special export sectorby giving tax incentives to help them compete internationally. cut down waste, corruption in state sector & privatize SOE's.
In case of increasing outflow, surely we can get help from the Chinese to prop up our Reserves ? They have Trillions of USD. All we need is a few Billion. Rupee - USD Swap with Chinese ?!

China has a strategic Interest in Sri-Lanka.  
http://forum.srilankaequity.com/t30531-chinas-strategic-presence-in-sri-lanka#180050  

It is good that it is a Wet Year.  
A black Swan event for Sr-Lanka is if Crude Oil goes to usd 200 a barrel due to Syrian crisis.
In the future, if Tourist dont come as expected, the integrated tourism / casino's concept does not work out as planned etc could be very problematic. (but their are billions of chinese !).

Oil & gas could be a positive future Black swan !

UKboy

UKboy
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Shorterm Solution: More $ bonds. renegotiate the repayment terms of existing loans.
Mid term: Encourage more youth to work abroad & Casino

Wishful thinking: more rain in catchment areas, Oil in mannar basin, manageable loses from Air Lanka, CPC & CEB, Cease the operation of Mihin Air with immediate effect, Sri Lanka will be an affordable place for an average tourist, India wont be an angry neighbour etc etc.

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Black Swans are very rare events.

What is happening in India and especially Malaysia and Singapore is a 'Perfect Storm'

These countries have integrated capital markets with low restrictions on the movement of capital. Hence capital flight.

SL's bond and stock market is exposed to capital flight but there are huge liquidity issues - ie there is no market to pick up 10 million JKH shares or 10 billion in T Bonds. Hence capital flight can only occur at maturity.

From my experience the shock that SL will face is in March and April next year when two 100b rupee bonds expire.

70b in public debt expired yesterday... let us see how that will move around the system

salt

salt
Vice President - Equity Analytics
Vice President - Equity Analytics
@slstock wrote:In Sri Lanka? Which ones?

@salt wrote: that's why some banks has taken efforts to raise rates...
Indonesia for example on last Friday raised rates. Australia was doing it well.
India too did, but looking not sufficient. Article too talks about it extensively.

wiki


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
More $........There are ways and means to overcome any problem

කියුබ් එකක් ඇමෙරිකානු ඩොලර් 18.5 ක මුදලකට මාලදිවයිනට මුහුදු වැලි කියුබ් 50,000 ක් අපනයනය කිරීමට රජය තීරණය කර ඇත.

පානදුර ධීවර වරායේ කණිනු ලබන මුහුදු වැලි මෙසේ අපනයනය කෙරෙන අතර ඒ සඳහා පෞද්ගලික සමාගමකට අවසර දීමට අමාත්‍ය මණ්ඩල අනුමැතියද ලැබී තිබේ.

පානදුර ධීවර වරායේ එක්රැස්වී ඇති මුහුදු වැලි ඉවත් කිරීම ධීවර වරාය නීතිගත සංස්ථාව පෞද්ගලික සමාගමකට පවරා තිබේ.

වැලි අපනයනයෙන් ලැබෙන ආදායම එම පෞද්ගලික සමාගමට ගෙවිය යුතුව ඇති මුදල් ගෙවීමට යොදා ගැනෙනු ඇත.
http://lankacnews.com/sinhala/news/100443/

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