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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Interest rates, inflation to go up, rupee to see steeper fall

Interest rates, inflation to go up, rupee to see steeper fall

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Melissa Pereira


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
The interest rates are expected to go up in the short term as the cash-strapped government is fast absorbing the liquidity through government securities and the inflation too is expected to trend upwards amid higher energy prices, according to a research arm of a leading stock broking house.  

The excess liquidity which peaked at Rs.370 billion at the beginning of this year has come down to Rs.62 billion, by the second week of July 2015, demonstrating the rate at which the government had been borrowing through Treasury bills and bonds during the first six months. 

According to JB Securities, the banks are slowly increasing their fixed deposit rates in the order of 25-50 basis points. However, the banks which maintain a higher Current and Savings Account (CASA) ratio will benefit from the rising interest rate environment as these deposits are not repriced.  

The commercial bank Average Weighted Deposit Rate (AWDR) edged up to 6.02 percent by the end of June from 5.95 percent a month ago while the Average Weighted Fixed Deposit Rate (AWFDR) edged up to 7.29 percent from 7.12 during the same period, the Central Bank data showed.    

However, this is in contrary to Standard Chartered Bank which expected a further 50 basis point rate reduction during the second half of 2015 amid low inflation and moderate growth.   

JB Securities further said that the current benign inflation will also trend up towards the latter part of 2015 on the back of the higher energy prices, as the administered retail energy prices will have to be revised up due to higher Brent crude prices and weaker rupee.  

“Average inflation will trend up to 4 percent due to higher retail fuel prices –this is within CBSL stated target range of 3-5 percent,” JB Securities said in its equity strategy report for 2015/16.  

JB Securities expects a steeper depreciation of the rupee by between 3-4 percent post-election as the currency is already under pressure due to strong dollar and capital outflows.  

“CBSL continues to intervene in the market, propping up the currency-a policy without merit and one presumes it’s more to do with election posturing,” they said. 

All in all, JB Securities estimates the economy would not grow above 6.5 percent (as measured by the 2002 base) due to fall in construction growth which accounted for 20 percent during the post-conflict period.  

However, the research unit is of the belief that voting back the existing government into power will bode well for creating an investor-friendly environment.  

“If the current government is voted back into office there will be greater efforts in improving the investment climate through enacting legislation to improve investor protection, targeted incentives and more business-friendly procedures and policies with the aim of improving on the country’s ranking as per the World Bank’s doing business index,” JB Securities said.
Courtesy: Daily Mirror 22 July 2015

VALUEPICK

VALUEPICK
Expert
Expert
Sri-Lanka already had devaluation when one USD dollar was trading around Rs.113. After devaluation it shot up to Rs.137 and later it stabilized around Rs.130 to Rs.133.Therefore, Sri-Lankan rupee can have minor volatility against USD or can depreciate little bit up to Rs.134 /135 levels.
 
On the other hand over valued currencies such as AUD and NZD will depreciate at least until 2018 against both Sri-Lankan rupee and USD. Strong dollar will crush both oil and gold in 2016 and 2017 as well.
 
Iran also will release more oil to the market. There will be more pressure on oil prices in the coming quarters.
 
http://www.marketwatch.com/story/oil-prices-to-stay-lower-for-longer-says-goldman-sachs-2015-04-07
Oil prices to stay lower for longer, says Goldman http
 
http://www.bbc.com/news/business-33629292
 
Oil prices hit as US data raises oversupply fears
 
http://www.usatoday.com/story/money/2015/07/22/oil-prices-tumble/30538053/
 
Oil prices fall below $50 a barrel
 
Not only advanced economies but also frontier markets such as Sri-Lanka and Pakistan should benefit lot due to lower oil, gas prices and other raw materials. Therefore, we cannot expect higher inflation like those days. Still we are not in the era of oil trading above $120. I can remember some investment bankers and top analysts predicted oil will go to $200. Some predicted gold will go to  $10,000. I think it is going to go to $500 now. Gold money also will flow back to undervalued assets including undervalued stocks and emerging commodities.

Quibit


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Good luck, CSE

nimantha80


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
@Quibit wrote:Good luck, CSE
onna ai awilla,dan index watenne 7000? or 6500?

policy rates unchanged
http://www.cbsl.gov.lk/pics_n_docs/latest_news/press_20150724e.pdf

VALUEPICK

VALUEPICK
Expert
Expert
@Quibit wrote:Good luck, CSE
Thank you!

Sri-Lankan rupee will appreciate against overvalued currencies such as AUD, NZD and CAD. These three currencies will have bear market and can last at least until 2018 as they went up rapidly against USD and other currencies during last five years.
 
http://www.cnbc.com/2015/07/15/bank-of-canada-cuts-main-interest-rate.html
 

Bank of Canada cuts main interest rate to 0.5

 
http://www.wsj.com/articles/oil-weak-after-overnight-losses-oversupply-weighs-1437617638
 
Oil Prices Enter Bear Market Amid Global Glut of Crude
 
http://www.theguardian.com/business/2015/jul/24/australian-dollar-hits-fresh-six-year-low-as-chinese-factories-continue-to-falter
 
Australian dollar hits fresh six-year low as Chinese factories continue to falter

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