Economic Capsule Economic Capsule Economic Capsule Economic Capsule Economic Capsule Economic Capsule Economic Capsule Eco...
C o n t e n t s <ul><li>Financial Sector N e w s   </li></ul><ul><li>Commercial Bank  Wins Finance Asia’s Best Bank Awar...
Financial Sector N e w s
<ul><li>Commercial Bank strengthened its credentials further as the  “ Best Bank in Sri Lanka ”  by winning the country aw...
Commercial Bank has been ranked 52 nd  in the world in the performance category (assessed on profits on average capital) a...
Top 5 Banks in the World According to the Banker’s Top 1000 World Bank rankings, assets had grown, by 6.4%, to cross the U...
<ul><li>The Bank, rated internationally as Sri Lanka’s best, will provide a loan of Rs 1.5 bn (aprox. USD 13.65 Mn) to the...
<ul><li>Commercial Bank has been rated 'AA+' by Ram Rating Lanka with a stable outlook. </li></ul><ul><li>The ratings also...
Commercial Bank Opens Exclusive ‘Elite’ Branch at Colombo 7 <ul><li>Benefits & Privilages </li></ul><ul><li>Personalized b...
Commercial Bank - Service Points Openings Research & Development Unit  201 Grogory’s Road, Colombo 7
<ul><li>According to John Keells Stockbrokers , c orporate financial results for the quarter ended June 30, 2011 showed th...
Economy & Business N e w s
Sri Lanka Emergency Rule ENDS... <ul><li>President Mahinda Rajapaksa in a special address to parliament stated that Sri La...
Hambantota Port gets USD 610 mn Worth  Investments  <ul><li>According to Sri Lanka’s ports authority, it has approved USD ...
Central Bank Relaxes Forex Rules CBSL ’ s new policy measures (w.e.f. 17.08.11):  <ul><li>Relaxation of restrictions for f...
Sri Lanka 1H Foreign Direct Investment  - USD 413 mn <ul><li>According to the CBSL, Sri Lanka's foreign direct investment ...
Singapore Leads Sri Lanka's Exports Growth in 1H 2011 <ul><li>Sri Lanka’s exports in the 1H of 2011 have registered 35.15%...
Inflation - August 2011 The Colombo Consumers’ Price Index (CCPI) decreased by 0.3 % to 151.3 in August from 151.7 in July...
Global Economy <ul><li>Moody's cuts Japan Debt Rating  </li></ul><ul><li>Moody's Investors Service cut its rating on Japan...
Analysis & Forecast
Analysis & Forecast  The High Risk of a Double-dip Recession <ul><li>A historical downgrade of US debt has accelerated a m...
Analysis & Forecast  Trade and Investment Opportunities -  Rising Asia and the Pacific <ul><li>Export recovery has led Asi...
Analysis & Forecast  Movements in Interest Rate and Exchange Rate <ul><li>The excess liquidity position in the Sri Lankan ...
  The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC  Th...
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Economic Capsule August 2011

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Economic Capsule August 2011

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  2. 2. C o n t e n t s <ul><li>Financial Sector N e w s  </li></ul><ul><li>Commercial Bank Wins Finance Asia’s Best Bank Award </li></ul><ul><li>Commercial Bank Only Sri Lankan Bank in World’s Top 1,000 </li></ul><ul><li>Top 5 Banks in the World </li></ul><ul><li>Commercial Bank First to Support National Development with IFA Loan </li></ul><ul><li>Commercial Bank Rated 'AA+' by RAM </li></ul><ul><li>Commercial Bank Opens Exclusive ‘Elite’ Branch at Colombo 7 </li></ul><ul><li>Service Points Openings </li></ul><ul><li>Listed Companies Net Profits up 30% to Rs. 32.7bn </li></ul><ul><li>BOC gives USD 10mn Credit Line to Maldives </li></ul><ul><li>Economic & Business N e w s  </li></ul><ul><li>Sri Lanka Emergency Rule Ends... </li></ul><ul><li>Hambantota Port gets USD 610 mn worth Investments </li></ul><ul><li>Colombo Dockyard Wins Supply and Passenger Vessel Orders </li></ul><ul><li>Central Bank Relaxes Forex Rules </li></ul><ul><li>Sri Lanka 1H Foreign Direct Investment - USD 413 mn </li></ul><ul><li>Sri Lanka’s Foreign Reserves Exceed USD 8 bn </li></ul><ul><li>Singapore Leads Sri Lanka's Exports Growth in 1H 2011 </li></ul><ul><li>Inflation - August 2011 </li></ul><ul><li>Global Economy </li></ul><ul><li>Analysis & Forecast - The High Risk of a Double-dip Recession </li></ul><ul><li>Analysis & Forecast - Trade and Investment Opportunities - Rising Asia and the Pacific </li></ul><ul><li>Analysis & Forecast - Movements in Interest Rate and Exchange Rate </li></ul>Research & Development Unit
  3. 3. Financial Sector N e w s
  4. 4. <ul><li>Commercial Bank strengthened its credentials further as the “ Best Bank in Sri Lanka ” by winning the country award for Sri Lanka at Finance Asia ’ s annual country awards 2011. </li></ul><ul><li>Finance Asia’s latest rankings, published in the magazine’s July 2011 issue, are based on the respective banks’ financial performance for FY 2010. The evaluation criteria included capital adequacy, liquidity and cost income ratios, pre and post tax profits, provisions for possible losses, return on equity and network of branches, agents and correspondents. </li></ul><ul><li>Total Assets, Loans and Deposits portfolio, vision and long term strategy, as well as market position versus its nearest competitor were also taken into consideration by FinanceAsia for the awards. </li></ul><ul><li>Commercial Bank was singled out for this prestigious accolade due to strong performance in all key indicators as well as its strategic relationships and customer service. </li></ul><ul><li>  </li></ul>Commercial Bank Wins Finance Asia’s Best Bank Award Research & Development Unit
  5. 5. Commercial Bank has been ranked 52 nd in the world in the performance category (assessed on profits on average capital) and 986 th on Tier 1 capital, the criterion widely accepted as the most important benchmark for assessing the financial stability of a bank, in the publication’s July 2011 issue.   Commercial Bank Only Sri Lankan Bank in World’s Top 1,000 Sri Lanka is once again represented in the top 1,000 banks in the world, with the inclusion of the Commercial Bank to this prestigious annual ranking by the UK based ‘The Banker’ magazine. Commercial Bank is the only Sri Lankan Bank in this ranking by the premier magazine serving the world’s investment, retail & commercial banking sectors. Source:The Banker – July 2011 Research & Development Unit Rank Strength Size Soundness Profits Performance Latest 12/10 Tier I Capital Assets Capital Assets Ratio Pre-tax Profit Real Profit Growth Profits on Average Capital Return on Assets USD Mn % ch. USD Mn Rank % ch. % Latest % Prev. Rank Latest USD Mn % ch. % latest Rank Latest % latest % prev. Rank Latest % Rank 986 265 17.51 3338 915 18.37 7.94 8.00 430 84 34.88 26.14 383 34.19 28.77 52 2.51 90
  6. 6. Top 5 Banks in the World According to the Banker’s Top 1000 World Bank rankings, assets had grown, by 6.4%, to cross the USD 100 tn mark for the first time. Profits soared by 77% to USD 709bn for the 2010 financial year, a USD 80bn short of the pre-crisis peak in 2007. In total, 105 banks returned to profit in 2011 ranking from last year’s losses, whereas only 14 have tipped from profit to loss. Source:www.thebankerdatabase.com Research & Development Unit
  7. 7. <ul><li>The Bank, rated internationally as Sri Lanka’s best, will provide a loan of Rs 1.5 bn (aprox. USD 13.65 Mn) to the Road Development Authority (RDA) payable over 14 ½ years, in the first ever disbursement from the IFA scheme proposed in the National Budget of November 2010. </li></ul><ul><li>The funds are to be used in a two and a half year project to rehabilitate/improve a 21.5 km stretch of the A6 highway between Dambulla and Habarana, under the government’s infrastructure development programme. International Construction Consortium (Pvt) Ltd (ICC), is the designated contractor who is also a key client of the Bank. </li></ul><ul><li>  </li></ul>Commercial Bank First to Support National Development with IFA Loan Commercial Bank has become the first bank in Sri Lanka to support national development initiatives with concessionary long term lending from its Investment Fund Account (IFA) set up in accordance with a proposal by President Mahinda Rajapakse in the 2011 budget. Research & Development Unit
  8. 8. <ul><li>Commercial Bank has been rated 'AA+' by Ram Rating Lanka with a stable outlook. </li></ul><ul><li>The ratings also reflect Bank’s strong franchise; healthy financial performance, funding, liquidity and capitalisation levels, as well as its adequate asset quality. </li></ul><ul><li>  </li></ul>Commercial Bank Rated 'AA+' by RAM Research & Development Unit
  9. 9. Commercial Bank Opens Exclusive ‘Elite’ Branch at Colombo 7 <ul><li>Benefits & Privilages </li></ul><ul><li>Personalized banking services through a dedicated Relationship Officer. </li></ul><ul><li>Meeting rooms, Wi Fi lounge & Safety lockers at the branch. </li></ul><ul><li>Free banking services which include debit cards, internet banking, tele-banking, mobile phone banking, balance confirmation, payment of utility bills and fund transfers. </li></ul><ul><li>Special rates on the issue and encashment of travellers’ cheques, foreign currency and foreign drafts and on the issue of credit cards and cheque books. </li></ul><ul><li>Priority services and discounts at leading providers of healthcare packages and diagnostic tests, local and overseas travel assistance, home or apartment maintenance, pharmaceuticals, spa and beauty treatment and flowers and gifts. </li></ul>The Commercial Bank of Ceylon has unveiled a new echelon in customer relationship management with the launch of ‘Elite,’ a portfolio of exclusive special privileges and benefits designed for a select segment of customers to be served at the new Elite Branch of the bank. Commercial Bank Chairman Mr. Mahendra Amarasuriya and Managing Director Mr. Amitha Gooneratne open the Bank’s Elite branch. Research & Development Unit
  10. 10. Commercial Bank - Service Points Openings Research & Development Unit 201 Grogory’s Road, Colombo 7
  11. 11. <ul><li>According to John Keells Stockbrokers , c orporate financial results for the quarter ended June 30, 2011 showed that total net profits of 195 public quoted companies, topping Rs. 32,707.96 mn up 30.62 % from a year earlier (about 0.5 % of the estimated GDP for 2011). </li></ul><ul><li>This growth had been led by the Hotel and Travel sector followed by the Motors sector. The Bank, Insurance and Finance sector, Diversified and Telecommunication sectors had contributed the highest to total profits. </li></ul>Listed Companies Net Profits up 30% to Rs. 32.7bn BOC gives USD 10mn Credit Line to Maldives <ul><li>State owned Bank of Ceylon (BOC) had arranged a USD 10 mn revolving credit line to the Maldives to help develop its hotel industry. </li></ul><ul><li>The credit line is granted at 6% and through this arrangement the Maldives has to buy Sri Lankan fruits and vegetables for their hotels. </li></ul><ul><li>  </li></ul>The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC Research & Development Unit
  12. 12. Economy & Business N e w s
  13. 13. Sri Lanka Emergency Rule ENDS... <ul><li>President Mahinda Rajapaksa in a special address to parliament stated that Sri Lanka will end nearly three decades of emergency rule which had to be renewed every month to give extensive arrest and detention powers to authorities over citizens. </li></ul><ul><li>The current phase of the state of emergency was introduced in 2005 after Tamil Tiger rebels assassinated then Foreign Minister Lakshman Kadirgamar. </li></ul>The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC Research & Development Unit
  14. 14. Hambantota Port gets USD 610 mn Worth Investments <ul><li>According to Sri Lanka’s ports authority, it has approved USD 610 mn investment in large warehousing projects for sugar, fertiliser, and bottle manufacturing at its new port in Hambantota, due to start commercial operations in 2011. </li></ul><ul><li>The ports authority has secured around USD 1 bn in investment into secondary port facilities, including warehousing, as Hambantota gears up to attract 2,500 ships annually when it opens. </li></ul><ul><li>India’s Shree Renuka Sugars, Singapore’s Peak Energy and Sri Lanka’s conglomerate Hayleys will together invest USD 610 mn in sugar refining, bottle manufacturing, and fertiliser bag production respectively. </li></ul>Colombo Dockyard Wins Supply and Passenger Vessel Orders <ul><li>Sri Lanka's Colombo Dockyard has won a deal from a Singapore-based owner to build four 78-metre Multipurpose Platform Supply Vessels (MPSVs) each with a 3,600 tonne deadweight capacity. </li></ul><ul><li>The Colombo Dockyard also won an order to build two passenger ferries for India's Laskshadweep island administration, on the wake of an earlier delivery to the same customer. The vessels ordered will have the capacity to carry 400 passengers and 250 tonnes of cargo. </li></ul><ul><li>The latest additions to the Colombo Dockyard’s shipbuilding order book will take the shipyard through the years 2012, 2013 and 2014 with an impressively heavy order book, especially considering the current global shipbuilding down-turn. </li></ul><ul><li>  </li></ul>The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC Research & Development Unit
  15. 15. Central Bank Relaxes Forex Rules CBSL ’ s new policy measures (w.e.f. 17.08.11): <ul><li>Relaxation of restrictions for foreign investments in Unit Trusts </li></ul><ul><li>The Budget 2011 proposed the removal of exchange control regulations in relation to investments in Unit Trusts. Following such budget proposal, the Central Bank will now allow non-residents and foreign institutional investors to invest in Sri Lankan Unit Trusts. </li></ul><ul><li>General permission for Sri Lankan students to obtain loans from foreign financial institutions </li></ul><ul><li>The current regulation is that students must obtain the prior approval of the Controller of Exchange, since the students are in a foreign country at the time the need arises. Accordingly, it has now been decided to grant a general permission for Sri Lankan students to obtain Students’ Loans from foreign financial institutions. </li></ul><ul><li>General permission for the Sri Lankan Residents to make payments to Non-Residents in respect of purchase of real estate properties in Sri Lanka </li></ul><ul><li>Under current regulations, resident buyers of Sri Lankan real estate properties from Non-Resident Sri Lankans are required to obtain the prior permission from the Controller of Exchange to make payments to Non-Residents. With a view to facilitate foreign exchange transactions, it has now been decided to grant the permission under section 7 of Exchange Control Act (ECA) as a general permission for Sri Lankan resident buyers to make payments to non-resident Sri Lankans in respect of purchase of real estate properties. </li></ul><ul><li>Permission for selected supermarkets to engage in money changing business </li></ul><ul><li>New facilities for the holders of Resident Non National Foreign Currency Accounts (RNNFC) </li></ul><ul><li>Permission to convert the salaries and other benefits paid in Sri Lankan Rupees to expatriate employees, into foreign currency and credit such amounts to RNNFC Accounts. As a further measure, permission will also be granted to transfer funds from accounts maintained in FCBU to the credit of RNNFC. </li></ul>The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC Research & Development Unit
  16. 16. Sri Lanka 1H Foreign Direct Investment - USD 413 mn <ul><li>According to the CBSL, Sri Lanka's foreign direct investment for the first half of 2011 reached USD 413 mn putting the country on track for a full year goal of USD 1 Bn. </li></ul>Sri Lanka’s Foreign Reserves Exceed USD 8 bn   <ul><li>The gross official reserves increased to USD 8,158 mn by August 16, 2011 from USD 6,610 mn recorded at end December 2010. </li></ul><ul><li>The Central Bank also noted that with increased inflows, the rupee has appreciated by 0.96 % against the USD so far during 2011. </li></ul><ul><li>  </li></ul>Source: Central Bank of Sri Lanka The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC Research & Development Unit   Period USD Mn 2009 601 2010 516 1Q, 2011 236 1H, 2011 413
  17. 17. Singapore Leads Sri Lanka's Exports Growth in 1H 2011 <ul><li>Sri Lanka’s exports in the 1H of 2011 have registered 35.15% growth compared to 2010 totaling to USD 5.1 bn. The highest exports growth was seen in exports to Singapore which reported a 74 % growth in comparison to the first half of 2010. </li></ul>Country Growth (%) External Sector Performance (Jan – Jun) Market Share (%) Source: Sri Lanka Export Development Board Source: Central Bank of Sri Lanka The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC Research & Development Unit   Growth % (YoY) Singapore 74.00 Belgium 53.33 UK 51.20 Germany 45.24 Other 42.60 Italy 37.74 UAE 37.03 Japan 36.89 Netherlands 36.68 USA 25.99 India 22.56 Russia 19.24 Category (in USD Mn) 2010 2011 % Growth Exports 3,741.67 5,056.82 35.15 Agricultural 959.23 1,128.53 17.65 Industrial 2,734.65 3,863.53 41.28 Textiles and garments 1,499.40 2,019.66 34.70 Rubber products 221.02 411.48 86.18 Imports 6,353.70 9,307.14 46.48 Consumer Goods 1,338.47 2,091.19 56.24 Food & beverages 887.50 1,123.14 26.55 Intermediate Goods 3,568.36 5,170.85 44.91 Textile and clothing 741.11 1,114.23 50.35 Investment Goods 1,316.67 2,015.15 53.05 Machinery and equipment 519.03 907.72 74.89 Transport equipment 267.96 422.07 57.51 Balance of Trade -2,612.02 -4,250.33 62.72 Workers’ Remittances 1,983.12 2,506.57 26.40
  18. 18. Inflation - August 2011 The Colombo Consumers’ Price Index (CCPI) decreased by 0.3 % to 151.3 in August from 151.7 in July 2011. The rate of inflation on a year-on-year basis decreased to 7.0 %, while the annual average rate of inflation moved up slightly to 7.1 % in August, 2011. The contribution to the monthly decrease of 0.3 % in the Index came mainly from price decreases in the sub category of Food and non alcoholic beverages (0.7 %). The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC Research & Development Unit Period CCPI (%) CCPI Core (%) Y-o-Y A.A. Y-o-Y A.A. July, 2011 7.5 7.0 8.9 7.4 August, 2011  7.0  7.1  7.8  7.5
  19. 19. Global Economy <ul><li>Moody's cuts Japan Debt Rating </li></ul><ul><li>Moody's Investors Service cut its rating on Japan's government debt by one notch to Aa3, blaming a build-up of debt since the 2009 global recession and revolving-door political leadership that has hampered effective economic strategies. </li></ul><ul><li>Japan's debt stands at around 200 percent of its GDP, after years of pump-priming measures by governments trying in vain to arrest the economy's long decline . </li></ul><ul><li>Vietnam's Inflation Rate Rises to 23% </li></ul><ul><li>Vietnam's inflation rate rose for the 12th month in a row in August, 11 driven by higher food and fuel costs. </li></ul><ul><li>The country's consumer price index was up 23% from a year earlier, which is the highest rate of inflation in Asia. </li></ul><ul><li>According to the Vietnam government's General Statistics Office, food and drink prices rose 34%. However, according to some economists, inflation may have peaked in August because of government measures to rein in credit. Vietnam's central bank has raised borrowing costs several times in 2011 and also pledged to cut the amount banks are allowed to lend. </li></ul><ul><li>Gold Price Drops </li></ul><ul><li>The price of gold dropped by 5.6% on 25/8/11 to close at USD 1,757.30 an ounce in New York, a drop of USD 104. Gold price has fallen since topping USD 1,900. </li></ul><ul><li>Analysts put the falls down to profit-taking and hope of new measures in the US to try to bolster its recovery. </li></ul><ul><li>Gold is perceived as a safe investment in times of uncertainty. Its price rose steadily this month during a tumultuous period on the markets caused by fears about the global recovery and euro debt crisis. </li></ul><ul><li>  </li></ul>The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC Research & Development Unit <ul><li>U.S. Closes 3 more Banks, 68 so far in 2011 </li></ul><ul><li>U.S. regulators closed three banks in August, bringing the total number of foreclosures in 2011 to 68, as the pace of bank failures slows. </li></ul><ul><li>The Federal Deposit Insurance Corporation (FDIC) expects the year-end tally of closures to be below last year's total of 157 banks. In 2009, there were 140 bank failures. </li></ul><ul><li>This year's bank failures illustrate the problems facing small community banks, many of which are hard hit by the slow economic recovery </li></ul><ul><li>  </li></ul>
  20. 20. Analysis & Forecast
  21. 21. Analysis & Forecast The High Risk of a Double-dip Recession <ul><li>A historical downgrade of US debt has accelerated a massive loss in global confidence, which began with new data showing that the US economy barely grew by an annual average rate of less than 1% in the 1H of 2011. </li></ul><ul><li>  Temporary factors such as soaring oil prices and the Japanese earthquake which disturbed supply chains have played some role in this. In some industries, notably car production, a rebound is plainly under way. Rising alarm about the future of the euro zone, where the debt crisis is now threatening to engulf Italy and Spain, has darkened the mood even more. Europe’s insufficient response to the sovereign crisis and the events around lifting the US debt ceiling, have negatively impacted the financial markets. </li></ul><ul><li>At the heart of the downturn is erosion in consumer, business and investor confidence, brought on by a series of temporary shocks—and policy blunders that have been deeper and more damaging than expected. </li></ul><ul><li>The slump in sentiment has slowed job creation, business investment and manufacturing output, leaving developed economies nearly stagnant. </li></ul><ul><li>If Western export markets slump, it will have a greater impact on countries which are more externally oriented, such as Korea, Singapore, Malaysia, Taiwan and Thailand, compared with the economies with higher dependence on domestic demand, such as China, India and Indonesia. </li></ul><ul><li>The deterioration in developed-world economies, especially in the US and euro zone has led the Economist Intelligence Unit and Morgan Stanley to lower their forecasts for global economic growth for 2011 to 3.6 % and 3.9 % respectively from the previous forecasts of 4.1 % and 4.2%. </li></ul><ul><li>Source: www.economist.com, Morgan Stanley </li></ul>The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC Research & Development Unit
  22. 22. Analysis & Forecast Trade and Investment Opportunities - Rising Asia and the Pacific <ul><li>Export recovery has led Asia and the Pacific out of the global financial crisis, allowing the region to emerge as an important stabilizing force and an engine of global economic growth. </li></ul><ul><li>However, it is challenging for Asian economies to maintain the growth momentum, given that the traditional developed economies of the Group of Three (G3: the European Union, Japan and the United States) will all face economic slowdown in the medium-to-long term. </li></ul><ul><li>The developing economies of Asia and the Pacific, normally the champions of export-led growth, may see their export growth almost halved, to 9% in 2011 from 17.3% in 2010. </li></ul><ul><li>A key challenge for economies in Asia and the Pacific during the next decade is to maintain their dynamic export prospects that are key drivers of economic growth and employment generation of the region. </li></ul><ul><li>The recovery of G-3 is expected to be sluggish, and it is increasingly recognized that the centre of global demand growth is shifting towards Asia and the Pacific. </li></ul><ul><li>Many of the region's economies have been able to demonstrate a robust recovery and they still have tremendous potential to expand their domestic consumption. </li></ul><ul><li>However, a key concern is whether the region's economies are capable of reducing dependence on the current export model (where exports are mostly determined by the level of final demand outside the region) and replacing it with a model that gives more weight to the importance of domestic demand in the region as a key driver of economic growth. </li></ul><ul><li>Such a transformation would require major changes, both on the export and the import sides, but it would also offer opportunities for intraregional trade. </li></ul><ul><li>Source: The Asia-Pacific Trade and Investment Report: Post-crisis Trade and Investment Opportunities   </li></ul>The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC Research & Development Unit
  23. 23. Analysis & Forecast Movements in Interest Rate and Exchange Rate <ul><li>The excess liquidity position in the Sri Lankan banking sector has increased because the Central Bank (CBSL) has been purchasing dollars during the past few months with a view to keeping the exchange rate stable. </li></ul><ul><li>Due to low interest rates and the availability of funds, lending of the banking sector increased at a higher rate of 34 % (YoY) in June, 2011 (partly due to the low base in June, 2010) exerting inflationary pressures in the economy. </li></ul><ul><li>Therefore, the CBSL increased the SRR in April, 2011 to mop up the excess liquidity position in the economy and the CBSL also had to sell dollars to the market in various months to fulfill the emerging import requirements. </li></ul><ul><li>As a result the liquidity position of the banking system started to shrink and now it is around Rs 50 bn. </li></ul><ul><li>In view of the above, interest rates are expected to increase slightly later in 2011 once the excess liquidity position is reduced in the market mainly due to expected higher demand for dollars by importers. The growth in credit expansion is expected to come down by the latter part of 2011 with upward adjustments in interest rates and the removal of the base effect. </li></ul><ul><li>The CBSL has been keeping the exchange rate at stable levels by purchasing or selling dollars. However, the sustained intervention in one direction or the other to keep exchange rates either above or below the levels suggested by fundamentals should be avoided. </li></ul><ul><li>The LKR/USD exchange rate is expected to remain at more or less stable levels in the foreseeable future assuming that there is no major external shock . </li></ul>The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC Research & Development Unit
  24. 24.   The views expressed in Economic Capsule are not necessarily those of the Management of Commercial Bank of Ceylon PLC The information contained in this presentation has been drawn from sources that we believe to be reliable. However, while we have taken reasonable care to maintain accuracy/completeness of the information, it should be noted that Commercial Bank of Ceylon PLC and/or its employees should not be held responsible, for providing the information or for losses or damages, financial or otherwise, suffered in consequence of using such information for whatever purpose. Research & Development Unit &quot;Gratitude is not only the greatest of virtues, but the parent of all the others.&quot; Marcus Tullius Cicero   &quot;Gratitude is not only the greatest of virtues, but the parent of all the others.&quot; Marcus Tullius Cicero (Marcus Tullius Cicero , was a Roman philosopher, statesman, lawyer, political theorist, and Roman constitutionalist.)

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