MONTHLY ECONOMIC WATCH

MONTHLY ECONOMIC WATCHNov 2021

Nov 2021First Capital Research 2

• Central Bank Issues New Rules on Conversion of Export Proceeds……………………...… 3

• Inflation……………………………………………………………………………………………… 4

• M2B & Sector Credit……………………………………………………………………………….. 8

• Reserves & Liquidity………………………………………………………………………............ 9

• Currency Movement…………………………………………………………………................... 10

• Government Securities……………………………………………………………….................. 11

• Finance Sector Rate Movement……………………………………………………………......… 14

• External Sector………………………………………………………………………………….….. 15

• Tourist Arrivals………………………………………………………………………………….….. 19

• Global Markets………………………………………………………………………………….….. 20

CONTENT BRIEFING

▪ The Monetary Board of the Central Bank issued new rules in respect of repatriation of export

proceeds into Sri Lanka and conversion of such export proceeds to Sri Lanka Rupees. The new

rules are applicable for both exporters of goods and services in Sri Lanka.

▪ The new rules require exporters to convert the residual (remaining balance of such export

proceeds received) into Sri Lanka Rupees, on or before the seventh (7th) day of the succeeding

month, upon meeting following authorized payments.

o Outward remittances in respect of current transactions.

o Withdrawal in foreign currency notes, as permitted.

o Debt servicing expenses and repayment of foreign currency loans.

o Purchases of goods and obtaining services including one-month commitments.

o Payments in respect of making investments in SLDBs in foreign currency up to 10% of the

export proceeds, so received.

▪ Accordingly, with the issuance of these rules, exporters are able to meet all the expenditure

relating to export of goods and services, out of their export proceeds.

CENTRAL BANK ISSUES NEW RULES ON CONVERSION OF EXPORT PROCEEDS


Source: CBSL

4

CCPI FOR OCT 2021: MOM +1.9%, YOY +7.6%▪ MoM inflation increased by 1.9% with the

increase in expenditure value of Fooditems by 2.8% and the increase of Non-Food items by 1.5%.

▪ The YoY inflation increased to 7.6% in Oct2021. YoY inflation of Food group hasincreased to 12.8% in Oct 2021 from 10.0%in Sep 2021 while Non‐Food groupincreased to 5.4% from 3.8% in Sep 2021.

INFLATION – CCPI

4.0%4.1%

4.2%

3.0%

3.3%

4.1%

3.9%

4.5%5.2%

5.7%

6.0%

5.7%

7.6%

3.0% 3.0%

3.5%

2.7%2.6%

3.1% 3.0%3.2% 3.2%

3.7%

4.1%

5.0%

6.3%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Inflation YoY Core Inflation YoY

Source: Dept. Census and Statistics

First Capital Research Nov 2021

-230

-130

-30

70

170

270

370

Ch

an

ge

in

Va

lue

(L

KR

)

INFLATION ANALYSIS – CCPI-MOM

Food Category Inflation


The CCPI index recorded an increase of 1.9%MoM contributed by the increase

in expenditure value of Food items by 0.91% and Non-Food items by 1.03%.

Within the Food items, increase in value changes were reported for Rice, Milk

Powder, Coconuts, Sea Fish, Limes and etc. Among Non-Food groups, increases in

value change were reported for the groups of Housing, Water, Electricity, Gas &

Other Fuels, Restaurant and Hotels, Furnishing Household Equipment & Routine

Household Maintenance, Clothing & Footwear and etc.

Non-Food Category Inflation

Source: Dept. Census and StatisticsSource: Dept. Census and Statistics

0.91% 1.03%

Food Non Food

0

75

150

225

300

375

450

Ch

an

ge

in

Va

lue

(L

KR

)

Inflation Analysis (YoY)


The YoY inflation of CCPI for Oct was 7.6% and has increased relative to the

month of Sep. Food item prices have increased to 12.8%YoY in Oct 2021 from

10.0%YoY in Sep 2021 while the Non-Food item prices have increased to

5.4%YoY from 3.8%YoY in Sep 2021. The contribution from food category for YoY

inflation was 4.00% while the contribution of Non-Food items stood at 3.68%

mainly due to the increase in Restaurant & Hotels, Transport, Housing, Water,

Electricity, Gas & Other Fuels, Health, Furnishing Household Equipment,

Clothing and Footwear, and etc.

INFLATION ANALYSIS – CCPI-YOY

Source: Dept. Census and StatisticsSource: Dept. Census and Statistics

Non-Food Category Inflation

4.00% 3.68%

Food Non Food

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

All Item Food Non Food

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

7

INFLATION – NCPINCPI FOR SEP 2021: DECREASED TO 6.2%YOY▪ NCPI for Sep 2021 decreased to 6.2%

compared to Aug 2021.

▪ Decline in inflation was mainly driven by

Food commodities while Non-Food

commodities remained unchanged

relative to last month. YoY Food inflation

decreased from 11.1% in Aug 2021 to

10.0% in Sep 2021 while Non-Food

inflation stayed at 3.0%YoY from Aug

2021 to Sep 2021.Source: Dept. Census and Statistics

6.4%

5.5%5.2%

4.6%

3.7%

4.2%

5.1%

5.5%

6.1%6.1%

6.8%6.7% 6.2%

4.8%

4.5% 4.5% 4.7%

4.2% 4.1% 4.3%

4.1%

4.2% 4.1%

4.4%

4.7% 4.7%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

NCPI YoY Core NCPI YoY

Nov 2021First Capital Research

M2B AND CREDIT GROWTH

M2b Growth – Sep 2021 MoM -0.2%, YoY +18.2%, YTD +11.5%


Private sector credit improved by LKR 29.1Bn in Sep 2021 sustaining the positive growth momentum for the 14th

consecutive month. State credit reflected a net borrowing of LKR 96.3Bn.

State Credit & Private Credit – Sep 2021 Private Credit MoM +0.4%, YoY +13.8%, YTD +10.6%

2.05%

1.65%

1.32%

2.96%

1.35%1.24%

1.94%

1.10%0.86%

1.31%1.37%

2.04%

-0.24%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

8,000

8,500

9,000

9,500

10,000

10,500

11,000

LK

R ‘

Bn

M2b MoM Growth

Source: CBSL

195266

107 179266

57

230

-45

78 190328

165

96

8759

39 77

26

79112

58

5683

77

134

29

LK

R '

Bn

State Credit Private CreditSource: CBSL

LIQUIDITY & RESERVES


▪ Market liquidity remained negative and witnessed a

continuous deterioration during Oct 2021 despite

frequent injection of liquidity by CBSL via term reverse

repos and increased CBSL holdings of Government

Securities.

Source: CBSL

▪ Foreign Reserves declined to USD 2.3Bn in Oct 2021

relative to USD 2.6Bn in Sep 2021,amidst the inadequate

inflow of foreign funds.

Source: CBSL

-250.0

-200.0

-150.0

-100.0

-50.0

0.0

50.0

100.0

150.0

200.0

250.0

300.0

Ma

rke

t L

iqu

idit

y (

LK

R '

Bn

)

5,8

59

5,5

55

5,6

65

4,8

15

4,5

56

4,0

55

4,4

77

4,0

33

4,0

60

2,8

34

3,5

51

2,5

81

2,2

68

CURRENCY MOVEMENTUSD:LKR Movement Sri Lankan Rupee vs Global Currencies

First Capital Research 10

Source: CBSL

Oc

t 2

02

1Y

TD

20

21

Source: CBSL

Nov 2021

180.0

185.0

190.0

195.0

200.0

205.0

-5.7%

-4.1%

-3.5%

-2.2%

-1.5%

-0.9%

-0.4%

0.6%

-14.0% -9.0% -4.0% 1.0% 6.0%

Aus Dollar

Can Dollar

UK Pound

China Renminbi

Euro

US Dollar

India Rupee

Japan Yen

-11.6%

-10.5%

-9.4%

-8.3%

-6.0%

-6.0%

-2.7%

1.7%

-14.0% -9.0% -4.0% 1.0% 6.0%

Can Dollar

China Renminbi

UK Pound

US Dollar

India Rupee

Aus Dollar

Euro

Japan Yen

Net Settlement Oct 2021 YTD

Maturities 442,524 2,472,265

New Issues 362,024 2,035,509

Excess/(Deficit) (80,500) (436,756)

CBSL Holdings of Gov. Securities YTD

As at End Oct 2021 1,466,842

As at End Sep 2021 1,332,206

Increase/ (Decrease) 134,636 741,656

GOVERNMENT SECURITIES – NEW ISSUES


Bill and Bond auctions for Oct 2021

Week EndingBills

('Mn)

Bonds

('Mn)Total

1-Oct-21 31,179 17,400 48,579

8-Oct-21 47,438 47,438

15-Oct-21 50,416 84,591 135,007

22-Oct-21 74,500 74,500

29-Oct-21 56,500 56,500

Total Issued 362,024

CBSL HOLDINGS OF GOV. SECURITIES…


…increased by LKR 134.6Bn in Oct 2021

-200

-150

-100

-50

0

50

100

150

200

250

0

200

400

600

800

1000

1200

1400

1600

Liq

uid

ity (L

KR

‘Bn

)C

BS

L H

old

ing

s (

LK

R ‘

Bn

)

Excess Liquidity CBSL Holdings of Gov. SecuritiesSource: CBSL

Tenure 29-Oct 30-SepChange

(bps) 30-JunChange

(bps)

During the month of Oct, the secondary bond market yield curve shifted upwards amidst the mounting pressure on yields

quoted by the market participants despite the lackluster performance witnessed for the most part of the month. In the midst of

growing uncertainty and negative liquidity position, the acceptance of two out of four bill auctions and one out of two bond

auctions held during the month of Oct remained lower than the total offered amount. Yields of short tenors increased by 65-

147bps, mid tenors by 82-170bps and long tenors by 133-155bps.

Source: First Capital Research

Interest Rate Change (bps)

TREASURY BILLS AND BONDS – OCT ‘21


Source: First Capital Research

4.5%

5.5%

6.5%

7.5%

8.5%

9.5%

10.5%

11.5%

12.5%29-Oct 30-Sep 30-Jun

3M 7.80% 6.95% 85 5.10% 185

6M 8.38% 7.05% 133 5.20% 185

1 Yr 8.65% 7.18% 147 5.40% 178

2 Yrs 9.08% 7.90% 118 6.15% 175

3 Yrs 9.25% 8.60% 65 6.70% 190

4 Yrs 9.95% 9.13% 82 7.15% 198

5 Yrs 10.50% 9.40% 110 7.40% 200

6 Yrs 11.10% 9.60% 150 7.65% 195

7 Yrs 11.55% 9.85% 170 7.95% 190

8 Yrs 11.60% 10.10% 150 8.15% 195

10 Yrs 11.80% 10.35% 145 8.25% 210

12 Yrs 11.88% 10.45% 143 8.40% 205

15 Yrs 12.10% 10.55% 155 8.55% 200

20 Yrs 12.23% 10.90% 133 8.78% 212

FINANCE SECTOR RATE MOVEMENTS

AWPR vs AWDR Interest Spread


Source: CBSL Source: CBSL

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

7.00%

7.50%

8.00%

8.50%

AWPR AWDR

-0.38%-0.18%

0.03%0.32%

0.40%0.55%0.79%0.68%

0.95%

0.99%1.19%1.71%

3.03%

1,0

05

98

8

65

6

28

2

58

7

89

4

1,0

85

94

7

1,0

00

84

8

81

9

96

4

92

4

95

2

1,0

94

81

8 89

2 1,0

07 1,1

04

1,1

00

200

300

400

500

600

700

800

900

1,000

1,100

1,200

USD 'MN

2020 2021

Exports for Aug recorded an increase of 16.2%YoY to USD 1.1Bn while the growth was led by improvements in almost all the subcategories

namely, industrial, agricultural and mineral exports. Earnings from the export of industrial goods recorded an increase by 17.5%YoY in Aug

2021, led by textiles and garments, petroleum products, rubber products, food, beverages and tobacco, and machinery and mechanical

appliances. Exports of garments to all major markets increased and earnings from the petroleum products improved as a result of the increase

in prices of aviation and bunker fuel and the increase in volumes of bunker fuel exports. Total earnings from the export of agricultural goods in

Aug 2021 increased by 10.9% mainly due to the increase in export earnings from tea, coconut (both kernel and non-kernel products), minor

agricultural products (mainly sesamum seeds and areca nuts), seafood and rubber. Total earnings from the export of minerals in Aug 2021

increased by 93.3% mainly due to the increased earnings from earths and stone, ores, slag and ash.

EXTERNAL SECTOR – AUG 21 – EXPORTS


Category 2020

(USD ‘Mn)

2021

(USD ‘Mn)

Change

(%)

Industrial Exports

- Aug

- YTD

729.0

4,905.4

856.8

6093.2

17.5

24.2

Agricultural

- Aug

- YTD

215.9

1,516.0

239.4

1,765.5

10.9

16.5

Mineral Exports

- Aug

- YTD

1.6

14.3

3.1

30.7

93.3

115.3

Total

- Aug

- YTD

947.2

6,445.0

1,100.4

7,903.0

16.2

22.6Source: CBSL

1,7

35

1,5

62

1,2

05

1,1

23

99

4

1,0

56

1,2

94

1,2

89

1,5

25

1,3

63

1,3

84 1

,52

7

1,5

92

1,5

24

1,9

26

1,7

07

1,6

07

1,6

59

1,7

10

1,6

87

600

800

1,000

1,200

1,400

1,600

1,800

2,000

USD 'MN

2020 2021

Despite the continuation of the import restriction measures, import expenditure increased by 30.8%YoY to USD 1.3Bn in Aug 2021

as well driven by the increase across all main categories of consumer goods, intermediate goods, and investment goods.

Expenditure on the importation of consumer goods in Aug 2021 increased by 41.8% with the increase in expenditure on food and

beverages led by vegetables (mainly lentils & onions), dairy products, sea food, spices, etc. Expenditure on importation of

intermediate goods increased by 27.6% with the rise in import expenditure on fuel and textiles and textile articles. Value of

investment goods increased with substantial increases in almost every subcategory under the three types of investment goods,

namely, machinery and equipment, building material and transport equipment and others.

Category2020

(USD ‘Mn)

2021

(USD ‘Mn)

Change

(%)

Consumer goods

- Aug

- YTD

228.6

2,300.3

324.3

2,579.3

41.8

12.1

Intermediate

- Aug

- YTD

791.3

5,692.4

1,010.0

7,942.427.6

39.5

Investment goods

- Aug

- YTD

269.0

2,253.2

351.7

2,882.3

30.8

27.9

Total

- Aug

- YTD

1,289.1

10,257.4

1,686.7

13,411.5

30.8

30.7

EXTERNAL SECTOR – AUG 21 – IMPORTS

Nov 2021First Capital Research 16Source: CBSL

EXTERNAL SECTOR – AUG 21


-342

-525

-515

-565

-563

-668

-572

-832

-889

-716

-652

-606

-587

-1,000 -900 -800 -700 -600 -500 -400 -300 -200 -100 0

Balance of Trade

Source: Central Bank


Aug

USD ‘Mn2020 2021

Change

(%)

Trade Balance -342 -586

Earnings from

Tourism0 7 N/A

Workers’

Remittances664 447 -32.8

YTD

USD ‘Mn2020 2021

Change

(%)

Trade Balance -3,812 -5,509

Earnings from

Tourism682 33 -95.2

Workers’

Remittances4,346 4,224 -2.8

Worker Remittances declined to USD 447.0Mn (-32.8%YoY). Earnings from

Tourism for Aug 21 improved to USD 7.0Mn although Jan-Aug 21 declined by -95.2

YoY%.

BoP for Jan-Aug 21 recorded at USD -2.4Bn compared to Jan-Jul 21 amount of

USD -2.8Bn recording a net inflow of USD 0.4Bn for the month of Aug 2021.U

SD

‘M

n

BALANCE OF PAYMENT DEFICIT INCREASED YOY IN AUG 2021

US

D ‘

Mn

Source: CBSL

Source: CBSL

Source: CBSL

-722

-2,423

-3000

-2500

-2000

-1500

-1000

-500

0

Jan-Aug 20 Jan-Aug 21

-342

-586

0 7

664

447

-800

-600

-400

-200

0

200

400

600

800

Aug-20 Aug-21

Trade Balance Earnings from Tourism Workers’ Remittances

Total = 664 Total = 454

TOURIST ARRIVALS – OCT 2021


The total number of tourist arrivals to Sri Lanka during Oct 2021 were 22,771. A notable improvement in

arrivals was observed during the month of Oct, as a result of the gradual curbing of Covid-19 and the

reopening of borders which supported the gradual revival in tourism activities. The largest source

markets recorded for the month of Oct were India, United Kingdom, Pakistan, Russia and Germany.

[22,771 – OCT, YTD 60,695 – MoM UP 68.1%]

0

50

100

150

200

250

300

'00

0 Tourist Arrivals

2019 2020 2021 Source: SLTDA

VN Index

S&P 500

Dow Jones

Euro Stoxx 50

KSE100

FTSE 100 Index

Nifty 50 Index

Nikkei 225

GLOBAL MARKET


Source: Investing.com

Economists Boost U.S. Inflation Forecasts Through the End of 2022Economists are ratcheting up their U.S. inflation forecasts through2022 as supply chain constraints persist and price pressures broadenout to categories like shelter and energy. The consumer price index willrise 5.8% at the end of the fourth quarter from a year earlier, above the5.5% estimated a month ago, according to the median forecast of 47economists in Bloomberg’s latest monthly survey. However, some ofthe projections were submitted prior to Wednesday’s October CPI data,which showed the biggest annual gain since 1990.

UK Covid rates are now falling rapidly despite dire warnings for the winterThe U.K. has had the unenviable title of having one of the worst Covid-19 rates in the world, with cases soaring in recent months prompting dire warnings from experts and officials over mounting pressure on hospitals and excess deaths. But the latest data from the U.K. shows that the country could be recovering from its latest wave of cases, with experts saying Britain has just seen its biggest weekly drop in the number of new Covid cases in 2021.

APEC leaders vow to tackle economic recovery, COVID-19, climateLeaders of the Asia-Pacific Economic Cooperation (APEC) forum vowed to address economic recovery in the region by shoring up supply chains, tackling labour issues and continuing to respond to the COVID-19 pandemic. The leaders of the 21-member grouping pledged to work together to address climate and environmental challenges. APEC is the last multi-lateral meeting of the year that comes after a flurry of gatherings.

Disclaimer

This Review is prepared and issued by First Capital Holdings PLC based oninformation in the public domain, internally developed and other sources,believed to be correct. Although all reasonable care has been taken to ensurethe contents of the Review are accurate, First Capital Holdings PLC and/or itsDirectors, employees, are not responsible for the accuracy, usefulness,reliability of same. First Capital Holdings PLC may act as a Broker in theinvestments which are the subject of this document or related investmentsand may have acted on or used the information contained in this document,or the research or analysis on which it is based, before its publication. FirstCapital Holdings PLC and/or a connected person or associated person mayalso have a position or be otherwise interested in the investments referred toin this document. This is not an offer to sell or buy the investments referred toin this document. This Review may contain data which are inaccurate andunreliable. You hereby waive irrevocably any rights or remedies in law orequity you have or may have against First Capital Holdings PLC with respect tothe Review and agree to indemnify and hold First Capital Holdings PLC and/orits principal, their respective directors and employees harmless to the fullestextent allowed by law regarding all matters related to your use of this Review.No part of this document may be reproduced, distributed or published inwhole or in part by any means to any other person for any purpose withoutprior permission.

21Oct 2021 FIRST CAPITAL RESEARCH

FIRST CAPITAL RESEARCHOct 2021 22

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