Inflation remains at low levels: Inflation increased marginally to 0.2% YoY in May 2015 from 0.1% recorded in April 2015 while annual average inflation declined to 1.9% in May from 2.1% in April 2015. CCPI increased by 0.7% MoM from April to May 2015 caused by the increase in food prices. In the Non-food category prices in the sub categories of Miscellaneous Goods and Services; and Recreation and Culture increased while others remained unchanged.
Expenditure on imports declines in March
Trade deficit contracts YoY: The trade deficit during March 2015 contracted by 13.5% YoY to US$ 521mn from US$ 602mn in 2014 due to the increase in export earnings at a higher percentage than the increase in import expenditure.
Earnings from exports declined marginally by 0.9%, YoY, to US$ 1,060mn in March 2015 from US$ 1,070mn recorded in March 2014. Earnings from tea exports, which declined from August 2014 YoY, continued to decline by 27% in March 2015 as well. Meanwhile, export earnings from spices increased by 63.3% due to the higher export volumes, especially pepper and cloves. On cumulative basis, export earnings during the first three months of 2015 increased by 1.6% YoY to US$ 2,862mn.
Expenditure on imports declined by 5.5% YoY to US$ 1,581mn in March 2015 mainly due to 66% decline in expenditure on fuel imports. Import expenditure on fertiliser and dairy products, which declined by 48.8% and 43.0%, respectively, also contributed significantly for the decline in import expenditure. On cumulative basis, expenditure on imports during first three months of 2015 increased marginally by 0.9% YoY to US$ 4,792mn.
Policy rates remained unchanged in May
Private sector credit increase to support the growth momentum: Market interest rates have adjusted downwards following the reduction in policy rates of the Central Bank in April 2015, while the continuation of the low interest rate regime induced demand for bank credit from the private sector. Accordingly, credit obtained by the private sector from commercial banks increased by 13.9% YoY in March recording a cumulative increase for the first quarter of 2015 as LKR 86.9bn. CBSL, in the view that the current monetary policy stance is appropriate, kept Deposit and Lending rates unchanged at 6.00% and 7.50% respectively.
The recent currency swap agreement with the Reserve Bank of India amounting to US dollars 400 million has strengthened official reserves of the country. Further, broad money (M2b) grew by 12.5% in March 2015 on a YoY basis, along the expected path for monetary expansion.
Tourist arrivals in May rise 26% YoY
Arrivals increase YTD: Arrivals for the month of May increased to 113,529, a 26% improvement from May 2014. For the period Jan-May 2015 tourist arrivals have grown by 14.5% over the corresponding period last year. Tourists from India records the highest number of arrivals with a 38.2% increase from May 2014 and 26.8% increase YTD. Chinese arrivals for May have increased by 71.9% YoY while for the Jan-May arrivals increase records as 80.2%, followed by UK arrivals which grew by 15% YoY and 9.7% YTD. Arrivals from South Asia, Middle East increased by 28% and 10.5 % YoY while a 33.1% YoY increase in arrivals is seen in East Asia compared to May 2014. North American arrivals grew by 24.8% while Western European arrival rose by 25.8% YoY with a notable YoY increase of 107% in Denmark arrivals. Eastern European arrivals grew by 25.9% YoY.
Rates dip slowdown
Marginal dip in rates: Following the heavy drop in rates during the month of April 2015 interest rates on securities settled with only marginal movement in May 2015. Across the board rates have dipped 10-20 bps.
Indian manufacturing activity slips: Manufacturing activity in India slipped but remained positive in April, with HSBC Holdings’ purchasing managers’ index registering 51.3, down from March’s 52.1. However, Market Economics noted that external orders remained robust during the month.
Manufacturers raise prices in Eurozone: Eurozone manufacturers were finally confident enough to begin raising prices in April, the first increase in eight months. In addition, input costs rose for the second month after six straight months of decline.
Asia will be fastest-growing region this year, IMF says: Asian economies will expand 5.6% this year, with growth in Japan and India compensating for a slump in China, according to the International Monetary Fund. However, IMF economists say Asian growth could weaken if regulators fail to deal with rising debt and increasing vulnerability to financial-market disruption. Chinese growth depends on higher productivity and domestic consumption, said Changyong Rhee, director of Asia-Pacific at the IMF.
Inflation seen rising because of QE, ECB official says: Expectations of inflation are on the rise as a result of quantitative easing by the European Central Bank, Governing Council member Erkki Liikanen said. "We’re not at the levels where we should be, but the direction is right," he said.
Asia still a draw as FDI in emerging markets falls: The International Monetary Fund forecasts lower growth of 4.3% for emerging economies this year and a decline in foreign direct investment, although Asia is expected to outperform.
Little improvement seen for Chinese manufacturing in May: China’s factories struggled to expand in May despite recent interest rate cuts and other policy stimulus, a Reuters poll showed, suggesting the government may have to do more to halt a protracted slowdown in the economy.
India’s Modi suggests more FDI: Indian economic sectors with high employment potential are a priority for the government as it considers ways to attract more foreign direct investment, Prime Minister Narendra Modi said.
Courtesy: The Island 22 June 2015