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1. Economic Capsule
August 2019
272nd Issue
Research & Development Unit

2. C O N T E N T S
BANKING & FINANCE
 ComBank wins double at 2019 Sri Lanka Best Employer Brand Awards
 ComBank named ‘Most Innovative Commercial Bank’ in Sri Lanka
 ComBank declared Sri Lanka's Most Respected Bank for 15th year in a row
ECONOMY & BUSINESS
 CBSL cuts policy rates by 50 bps
 NCPI increases marginally
 Pressure on rupee
 PMI grows on recovery after Easter attacks
 Tourism industry begins to recover
 Sri Lanka voted world’s best island
 Sri Lanka slips 2 places in UNCTAD’s latest shipping connectivity index
 Sri Lanka’s shortage of ICT/BPM professionals set to widen
 Govt. to call RFPs for USD 500mn Samurai bond
INTERNATIONAL
 Is the US Economy Nearing a Recession?
 Safe-haven currencies under pressure as stimulus hopes grow
 Central banks in Asia are cutting rates to prop up their economies

3. Banking & Finance

4. ComBank declared Sri Lanka's
Most Respected Bank
Research & Development Unit
Commercial Bank was ranked as the Most Respected Bank in Sri Lanka
for the 15th consecutive year and as the fourth Most Respected
corporate entity in the country overall, in the 2019 ‘Most Respected
Entities in Sri Lanka’ rankings compiled by LMD magazine following a
survey by Nielsen.
The Bank was also ranked second overall for Honesty and Financial Performance and
among the top five corporate entities in Sri Lanka for Management Profile, Corporate
Culture, Quality Consciousness and Vision.
Commercial Bank continued to be the only bank among the top five Most Respected
entities in Sri Lanka in this latest list published by LMD. The Bank has been the Most
Respected Bank in LMD’s annual ranking since the publication launched the ranking in
2005.

5. ComBank named ‘Most Innovative
Commercial Bank’ in Sri Lanka
Research & Development Unit
Commercial Bank was adjudged the ‘Most Innovative Commercial Bank
in Sri Lanka’ in 2019 by a leading business magazine in London,
acknowledging the Bank’s focus on meaningful innovation in processes
and service delivery.
By conferring this award on Commercial Bank at the Business Tabloid Banking
Awards, Business Tabloid magazine recognised the Bank as a player at international
level, purely on the merits and expertise it has demonstrated in the industry.

6. ComBank wins double at 2019
Sri Lanka Best Employer Brand
Awards
Research & Development Unit
Commercial Bank won two awards for ‘Brand Excellence in
Banking’ and Best Corporate Social Responsibility Practices’
at the 2019 Sri Lanka Best Employer Brand Awards presented
recently by the World Human Resource Development (HRD)
Congress.
The awards recognised Commercial Bank for its strong
brand presence within and outside Sri Lanka and
spotlighted the Bank’s notable contributions to the
country through continuous and impactful Corporate
Social Responsibility (CSR) work.

7. Economy &
Business

8. CBSL cuts policy rates by 50 bps
Research & Development Unit
22.08.19 30.05.19 End Dec 18
Standing Deposit Facility Rate (SDFR) 7.00 7.5 8.00
Standing Lending Facility Rate (SLFR) 8.00 8.5 9.00
• SDFR - The floor rate for the absorption of overnight excess liquidity from the banking system by the Central Bank
• SLFR - The ceiling rate for the injection of overnight liquidity to the banking system by the Central Bank
• Basis points(bps) - percentage change in the value or rate. E.g. One basis point is equivalent to 0.01% , 10 bps = 0.1%, 50 bps = 0.5%
Reasons given by CBSL for the rate cut:
 Current and expected developments in the domestic economy and the financial market as
well as the global economy,
 with the aim of further supporting the revival of economic activity
 in the context of low inflation prevailing at present and
 the medium term inflation outlook, which is well anchored in the desired 4-6 %range.
Cont.
Source: CBSL

9. CBSL cuts policy rates by 50 bps (cont.)
Research & Development Unit
Slowing global economic activity has prompted many countries to relax their
monetary policies
Amidst weakening global demand due to uncertainties arising from trade
tensions and geopolitical developments, many central banks in advanced and
emerging market economies have reduced policy interest rates to support
domestic economic growth
Economic growth is likely to be hampered by adverse domestic and global
developments
Inflation is expected to remain in mid-single digit levels in the medium term
Headline inflation and core inflation, as measured by the year-on-year changes in
both Colombo Consumer Price Index (CCPI) and National Consumer Price Index
(NCPI), remained low in recent months, partly driven by subdued food prices

10. NCPI increases marginally
Research & Development Unit
Headline inflation as measured by the
year-on-year change in the National
Consumer Price Index (NCPI,
2013=100) increased marginally to
2.2 % in July 2019 from 2.1 % in June
2019 due to the monthly increases of
prices of items in both Food and Non-
food categories.
Meanwhile, in July 2019,
year-on-year Food and Non-food
inflation recorded 2.5 % and 6.1 %
respectively.
Source: CBSL

11. Pressure on rupee
Research & Development Unit
The Sri Lankan rupee has appreciated
against the USD by 2.2 % so far during the
year (21.08.19), although some
depreciation pressure was experienced
during the past few days.
According to CBSL, the depreciation
pressure, mainly driven by foreign
withdrawals from the Government
securities market by a few investors, is
expected to be short-lived.
Meanwhile, gross official reserves are
estimated at USD 8.3 bn at end July 2019,
providing an import cover of 5.0 months
Government Securities held by Foreign
Investors vs USD/LKR
Source: CBSL

12. Growth in both manufacturing and
services *PMI
Gradual recovery since the Easter Sunday attacks have led to an expansion in manufacturing
and services sectors in July,2019, with a significant increase in new orders and production as
indicated by the Purchasing Managers Index (PMI) released by the Central Bank of Sri Lanka.
*PMI – Purchasing Managers Index (PMI ) is a business sentiment index that reflects the expansion or contraction of manufacturing and service sector of an economy over a period of time. The Index PMI is calculated as a ‘Diffusion
Index’, where it takes values between 0 and 100.
PMI=50 -sector remained neutral on month-on-month basis
PMI>50-sector is generally expanding on month-on-month basis
PMI<50 -sector is generally declining on month-on-month basis

13. Growth in both manufacturing and
services PMI (cont.)
• PMI Manufacturing: Manufacturing activities expanded further at a higher rate in July 2019,
recording an index value of 55.7, which is an increase of 1.8 index points compared to June
2019.
• This expansion in manufacturing PMI is mainly attributable to the significant increase in New
Orders and subsequent increase in Production, especially in the manufacturing of food &
beverages sector.
• PMI Services: The Services sector continued to expand in July 2019, underpinned by
accelerated expansion in New Businesses, Business Activity and Expectations for Activity
compared to June 2019. This indicates a further recovery of the services sector after the
Easter Sunday attack.
• Services activities expanded, recording an index value of 57.1 which is an increase of 4 index
points compared to June 2019.

14. Tourism industry begins to recover
Research & Development Unit
Sri Lanka’s tourism industry is showing signs
of gradual recovery, according to industry
sources, although a national election later
this year is likely to weigh on holiday season
arrivals.
Sri Lanka has offered a raft of discount deals,
scrapped the fee on tourist visas for 48
nations, and simplified the visa process for
visitors from those countries to woo tourists
back.
Revenue from the sector in the first half of
2019 has fallen 13.4% to USD 1.89bn,
according to official data.
Tourist arrivals from Europe and Asia-
Pacific, which together account for 90%
of the total visitors to Sri Lanka, nearly
halved in July from a year ago, according
to the latest data from the country’s
Tourism Development Authority.
Cont.

15. Tourism industry begins to recover (cont.)
Research & Development Unit
Tourist Arrivals Earnings from Tourism
Source: CBSL

16. Sri Lanka voted world’s best island
Research & Development Unit
In a survey carried out by the
‘Travel and Leisure’ Website,
Sri Lanka has emerged as the
world’s best island to travel
in 2019.
According to ‘Travel and
Leisure’, this was the first
time Sri Lanka made it to the
list and straight to the top
with a high score of 92.12.
In July 2019 Sri Lanka was also ranked as the ‘World’s Best Island’ by
TRAVEL + LEISURE magazine readers.

17. Sri Lanka slips 2 places in
UNCTAD’s
latest shipping connectivity index
Research & Development Unit
UNCTAD’s liner shipping connectivity index (LSCI) for 2019 is out, showing countries
that have improved or worsened their positions in maritime transport networks.
Sri Lanka slipped two positions in the LSCI, to 20th position.
Despite the country’s setback in
this year’s index, Sri Lanka was
ranked eighth among the
countries with the highest LSCI
increases over the last 10 years
with Vietnam recording the
largest improvement.
Source: unctad.org
Source: unctad.org
Cont.

18. Sri Lanka slips 2 places in UNCTAD’s
latest shipping connectivity index (cont.)
Research & Development Unit
Meanwhile, the Colombo Port was
ranked as the 19th best connected
port in UNCTAD’s 2019 ranking of
the world’s best-connected ports,
scoring 63.52 connectivity points,
slightly down from 64.04 points in
2018.

19. Sri Lanka’s shortage of ICT/BPM
professionals set to widen
Research & Development Unit
The shortage of Sri Lanka’s information and
communication technology (ICT)/business
process management (BPM) professionals is
projected to widen to 12,140 this year, from a
mere 458 in 2013, driven by the sector’s rapid
growth, according to the latest IT-BPM Workforce
Survey 2019.
The survey showed that the overall strength of
the ICT/BPM workforce had grown by 50.7 %
during 2014-2018, with total employment
reaching 124,873 in 2018, which is significantly
higher than the earlier industry estimate of
85,000 workforce.

20. Govt. to call RFPs for USD 500mn
Samurai bond
Research & Development Unit
The Government will soon issue Request for Proposals to
raise USD 500 mn via Samurai bonds, which will be used
to bolster reserves and finance debt repayment, Central
Bank Governor Dr. Indrajit Coomaraswamy said.
The Governor expressed hope that they will be able to
borrow at below the cost of the recent successful
International Sovereign Bond (ISB) issuance, through
which Sri Lanka raised USD 2bn at 6.85% on 5-year
tenure, and 7.85% on 10-year tenure.
Sri Lanka has to pay almost USD 6bn debt this year, over USD 5bn next year and
USD 4bn in 2021 and beyond. This means the Government will have to raise around
USD 3bn each year, going forward, for debt repayment.

21. International

22. Is the US economy nearing a
*Recession?
The interest rate on the 10-year U.S. Treasury bond briefly dropped during the third week of August,
2019 below the rate on the 2-year Treasury bond for the first time since 2007.
Usually, investors earn higher interest on longer-term bonds than on short-term ones. Put another
way, the U.S. government will usually pay more interest to investors who are willing to let out their
money for longer periods.
US Financial markets are giving warning signs of a
recession. At the same time, the world economy is
weakening, and the trade war between the United States
and China has intensified.
All of which is raising concerns about the U.S. economy and
about whether the country’s record-breaking, 10-year
expansion is nearing an end.
*Recession - A negative economic growth (GDP growth) for two consecutive quarters Cont.

23. Research & Development Unit
When longer-term Treasuries pay less than shorter-term
ones, economists call it an inverted yield curve.
An inverted curve suggests that investors expect the
economy to slow so much that the U.S. central bank will
soon feel forced to cut short-term rates to try to support
the economy.
This is a sign of economic pessimism. Inverted curves are
very good at predicting recessions: They have happened
before in each of the past five recessions.
Is the US economy nearing a
Recession? (cont..)

24. Safe-haven currencies under
pressure as stimulus hopes grow
Research & Development Unit
Safe-haven currencies such as the yen and Swiss
franc were under pressure as expectations
policymakers would unleash new stimulus eased
immediate concerns about a slowing global
economy.
Such hopes found support from the Chinese central
bank’s interest rate reforms, seen lowering corporate
borrowing costs, and reports of new fiscal stimulus in
Germany.
Risk sentiment could improve further if the US
government offers some concessions to Huawei,
which makes a resolution to the trade war more
likely. Source: Reuters

25. Central banks in Asia are cutting rates
to prop up their economies
Research & Development Unit
As the global economy threatens to slow down, central banks around the
world have been slashing interest rates. But that alone may not be enough to
boost growth, especially in some of Asia’s emerging markets, economists say.
Instead, more government spending is needed to lift economic activity, they
say.
In August 2019 alone, central banks in India, Thailand, the Philippines, and even New
Zealand cut their benchmark rates. The Bank of Thailand’s rate cut was the first in
four years, while the Reserve Bank of New Zealand’s larger-than-expected easing
brought lending rates to an all-time low of 1%.

26. 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.
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