Inflation rests at low levels: Inflation declined marginally to 0.1% YoY in June 2015 from 0.2% recorded in May 2015 with annual average inflation declining to 1.7% in June from 1.9% in May 2015. However, monthly CCPI increased by 1% from May to June 2015 caused by the increase in food prices. In the Non-food category prices in Clothing and Footwear; Furnishing, Household Equipment and Routine Household Maintenance and Recreation and Culture; sub categories increased while others remained unchanged.
Export earnings drop in April
Trade deficit widens YoY: The deficit in the trade account in April 2015 widened by 15.1% to US$ 783mn in comparison to US$ 680mn in April 2014. On a cumulative basis, trade deficit during the first four months of 2015 increased by 3.9% to US$ 2,713 mn.
Earnings from exports declined 7.4% YoY to US$ 707.5mn in April 2015 from US$ 764.3mn recorded in April 2014. The reductions recorded in exports earnings from tea (-12.7%), petroleum products (-42.7%), sea foods (-41.2%), rubber products (-16.2%) and textiles and garments (-2.0%) respectively contributed for the drop in exports during the month. On a cumulative basis, export earnings during the first four months of 2015 declined marginally by 0.3% YoY to US$ 3,569mn.
Total import expenditure in April 2015 increased by 3.2% to US$ 1,490mn mainly due to growth in imports led by personal motor vehicles which increased by more than 90% followed by increase in machinery and equipment (23.6%) and transport equipment which increased by more than 100%. On a cumulative basis, expenditure on imports during the first four months of 2015 increased marginally by 1.5% YoY to US$ 6,283mn mainly led by consumer good imports followed by investment goods imports.
Policy rates remained unchanged in June
Private Sector credit increase supports continued expansion of economic activity: Credit to the private sector in April 2015 grew by 15.2% YoY with all three sectors of the economy contributing positively on the expansion of the local economy. In absolute terms, credit extended to the private sector has been increasing by around LKR 25bn on average per month up to April 2015. Monetary Board in the view that the current monetary policy stance is appropriate, kept Deposit and Lending rates unchanged at 6.00% and 7.50% respectively. Broad money supply (M2b) recorded a YoY growth of 13.9% in April 2015.
Tourist arrivals in June rise 26% YoY
Arrivals increase YTD: Sri Lanka’s tourist arrivals rose 12% YoY to 115,467 in June 2015 driven by rapid growth of tourists from China and India. The total number of visitors YTD were up 14.1% to 830,051 from 2014. Arrivals from South Asia have been growing rapidly, up by 19.5% YoY in June 2015 largely owing to Indian visitors while arrivals from East Asia also grew by over 19% YoY mainly driven by visitors from China. The Western European market remained the largest source of visitors YTD, up almost 15% from a year earlier. Arrivals from Eastern Europe are down 11.4% YTD.
Foreign selling in mid-term bonds
Marginal dip in rates: With maintained policy rates and lower inflation, short term interest rates remained unchanged while mid-term rates showed an upward trend with pressure mainly coming from foreign selling. However, 30 year bond rate declined by 59 basis points with buying interest arising from local investors.
U.S. consumers surprise with reluctance to spend: American consumers had been expected to step up spending in April, but outlays were flat after a 0.5% rise in March. The result suggests continued low inflationary pressure and may prompt further hesitancy by the Federal Reserve to raise interest rates until later in the year. Separately, however, a Market measure of factory activity revealed some improvement in late May.
Indian factory activity picks up: HSBC’s purchasing managers’ index for India’s manufacturing sector jumped to 52.6 last month from 51.3 in April. "PMI data signaled a further robust expansion of the Indian manufacturing economy in May. Both output and new order growth accelerated to four-month highs whereas the rise in export orders lost traction," said Pollyanna De Lima, an economist with Markit, which compiled the index.
Australia posts better-than-forecast growth: Australia’s economy grew at a surprisingly robust 2.3% annual pace in the first three months, although the gain remained considerably below the typical 3%-to-3.25% growth rate. Wages were stagnant during the period, and economic gains were described as largely confined to certain geographical regions.
Most Asian-Pacific markets fall as Greek-EU talks drag on: China’s Shanghai Composite rose 1.7% Tuesday, but other Asian-Pacific markets posted losses as traders turned risk-averse. Japan’s Nikkei 225 slid 0.1%. Hong Kong’s Hang Seng Index fell 0.5%. Australia’s S&P/ASX 200 dropped 1.7%. South Korea’s Kospi gave up 1.1%. India’s Sensex was down 2.4%.
U.S. posts rise in retail sales: Retail sales in the U.S. increased 1.2% in May, and April’s figure was revised up, signaling the economy is picking up after a first-quarter slump. Separately, claims for jobless benefits were up slightly last week, although they remained within a range that points to a tighter labor market.
China’s credit situation improves after central bank easing: Aggregate financing and new yuan loans were up last month in China, suggesting the central bank’s easing policies are beginning to tell. The bank has cut interest three times since November and reduced reserve ratio requirements in hopes of lifting loan demand and countering the effects of a crackdown on shadow banking.
Asian-Pacific markets fall amid renewed worries about Greek default: Growing concerns about the likelihood of a Greek default sent Asian-Pacific markets falling Monday. Japan’s Nikkei 225 declined 0.1%. Hong Kong’s Hang Seng Index dropped 1.5%. Australia’s S&P/ASX 200 gave up 0.1%. China’s Shanghai Composite fell 2%. South Korea’s Kospi moved down 0.5%. Bucking the trend, India’s Sensex was up 0.6%.
- First Capital Research
Courtesy: The Island 14 July 2015