Floods fails to move CB

Perhaps wanting to keep its head above water, the Central Bank yesterday sounded unruffled by the severe impact on the socioeconomic fabric caused by two bouts of unprecedented floods.

The statement issued following the February monetary policy review was overly confident and had more positives than concerns, according to analysts.

This unruffled stance is despite the first round of floods in January estimated have caused around Rs. 50 billion in damage whilst the latest deluge was reported to have inflicted a similar impact. The statement also dismissed growing public and Opposition fury over rising food prices.

“The increase in the price of food items during the month could be attributed to the adverse weather conditions. While the paddy output is expected to be affected due to recent floods, the availability of stocked-up paddy and the possibility of the increase in the extent of cultivation during the Yala season are likely to ease any price pressures in 2011,” the Central Bank said.  “The recent price surges in other food crops are expected to subside as the situation normalises in the coming months,” it added.

Noting that the global economy is set to recover faster in 2011 than previously expected, the Bank said that this will help exports improve its earnings further.

Central Bank also said the impact of the global recovery on the demand for key commodities could have an impact on prices. But it reassured that “Appropriate measures will continue to be taken to contain the effect of any such developments.”

Certain recently implemented fiscal measures, such as the duty waiver granted for customs import duty on petrol and the reduction in taxes on importation of milk powder, would reduce the upward price pressures arising from adverse international commodity prices, the statement said.

“Overall, the expected improvements in the fiscal sector are likely to ease pressure on domestic prices in the medium term,” Central Bank said.

The statement also said that inflation, as measured by the change in the Colombo Consumers’ Price Index (Base=2002), has remained broadly stable in January 2011. Year-on-year inflation was 6.8 per cent in January compared to 6.9 per cent in the previous month, while annual average inflation reached 6 per cent in January from 5.9 per cent in the previous month. As in the previous months, the marginal increase in the index was largely driven by the food and non-alcoholic beverages category.

Focusing on official reserves the Central Bank said they have strengthened further as the International Monetary Fund last week completed its review of the country’s economic performance approving immediate disbursement of the sixth tranche under the ongoing Stand-by Arrangement. Accordingly, total disbursements under the arrangement so far amount to SDR 964.6 million (approximately US$ 1.516 billion).

The February monetary policy review kept policy rates unchanged as expected by most analysts. Central Bank backed this decision saying that provisional data up to end 2010 indicates that year-on-year growth in broad money is in line with expected money growth. “The high growth momentum in credit to private sector continues and the Central Bank will continue to monitor these developments closely,” the statement added.

“While short term interest rates have responded positively to the reduction of policy interest rates in January 2011, which was aimed at further encouraging substantial and sustained private sector participation in economic activity, lending rates of many banks are yet to adjust fully,” the statement said.

Taking into consideration of these developments, the Monetary Board, at its meeting held on 7 February 2011, decided that the current monetary policy stance is appropriate. Accordingly, the policy interest rates of the Central Bank will be maintained at their current levels, i.e., the Repurchase rate at 7.00 per cent and the Reverse Repurchase rate at 8.50 per cent.

The release of the next regular statement on monetary policy will be on 8 March 2011.

Floods destroy at least 35% of rice crop

REUTERS: Two rounds of flooding in Sri Lanka since January have destroyed at least 35 per cent of the staple rice crop, the Agriculture Ministry said on Tuesday, raising the risk of food price inflation. 

Heavy monsoon flooding since mid-January has caused landslides and burst hundreds of dams and killed at least 57 people. In the latest round this week, rising water forced at least 193,700 people into temporary shelters. 

The rice crop has taken a major beating, according to preliminary government surveys, but Asian rice traders said the impact on the global market will be minimal as the country has stocks and import volumes are expected to be small. 

“On rough estimates, more than 300,000 hectares have been completely destroyed so the total expected production is 1.75 million metric tonnes,” Agriculture Ministry Secretary K.E. Karunatilake, the Ministry’s top civil servant, told Reuters. 

Total expected rice production this season had been 2.7 million metric tonnes from 739,000 hectares, he said. 

Sri Lanka is usually self-sufficient in rice production, having produced 3.65 million metric tonnes in 2009 against an average annual consumption of 2.34 million MT, according to data from the Central Bank and Census and Statistics Department. 

Last year it imported 52,000 tonnes of specialty rice. Despite self-sufficiency, politically influential traders are often accused of hoarding supplies.  

The Government as of now has 188,000 MT in stock, according to the Census and Statistics Department. It had no data on private stocks, but they have historically been larger than the Government supply.

Current rice stocks and the potential for a larger crop in the May-September season “are likely to ease any prices pressures in 2011”, the Central Bank said on Tuesday after holding rates steady and shrugging off inflation fears.