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CBSL introduces new overnight policy rate, cuts monetary policy by 50 basis points

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By: Isuru Parakrama

November 28, Colombo (LNW): The Central Bank of Sri Lanka has introduced a new primary policy tool known as the overnight policy rate (OPR), setting it at 8.00 per cent.

This marks a 50-basis-point reduction in the central bank’s policy stance, targeting the call money rate, which is commonly used in the interbank market.

The call money rate, which stood at 8.55 per cent the previous day, is now expected to align closely with the OPR, reinforcing the Central Bank’s efforts to influence market lending rates more effectively.

Governor Nandalal Weerasinghe explained that this shift to a single policy rate structure would enhance the effectiveness of monetary policy, facilitating smoother transitions in both the government securities market and the broader economy.

By targeting the call money rate—the interest rate at which commercial banks lend to each other overnight—the OPR will serve as a more precise tool for adjusting market lending rates and guiding overall economic activity.

The move comes amidst a deflationary environment that has seen Sri Lanka experience two consecutive months of falling prices, with no immediate signs of inflation returning to positive figures until mid-2025.

In this context, the Central Bank has opted to ease its monetary stance further, expecting inflation to gradually converge towards the target level of 5.0 per cent over the medium term.

The immediate impact of the OPR adjustment was evident in the Treasury bill auction held shortly thereafter, where yields dropped significantly.

The benchmark one-year Treasury bill yield, in particular, fell by 70 basis points to 9.08 per cent, indicating stronger demand for government securities and market expectations of further easing in monetary conditions.

Although the Central Bank has streamlined its approach by adopting a single policy rate, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) will remain in place for overnight transactions, albeit no longer as primary policy rates.

These rates will now be linked to the OPR, with the SDFR set at 7.50 per cent and the SLFR at 8.50 per cent, establishing a narrow 50-basis-point band for overnight borrowing and lending transactions.

The broader economic context for this policy adjustment reflects improved conditions in Sri Lanka’s external sector, with foreign currency reserves now at US $6.5 billion, providing a stronger buffer to support monetary policy easing.

The Central Bank has revised its growth forecast for 2024, now expecting the economy to expand by 4.5 to 5.0 per cent, a higher figure than initially anticipated, largely driven by stronger external trade and a gradual recovery in key sectors.

Sri Lanka voices support for Israel-Lebanon ceasefire amidst hopes for regional stability

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By: Isuru Parakrama

November 28, Colombo (LNW):  The Ministry of Foreign Affairs has officially expressed its backing for the newly announced ceasefire between Israel and Lebanon, urging that this development may signal the possibility of long-lasting peace in the region. 

In a statement, the Ministry stressed that the government conveyed its optimism, highlighting its hope that the truce would lay the groundwork for stability, not only in Lebanon but across the broader Middle East.

The ceasefire, which was announced on November 26, marks a significant step toward halting nearly 14 months of hostilities, primarily driven by the ongoing conflict between Israel and Hamas in Gaza. 

This temporary cessation of violence follows a particularly volatile period, with both Hezbollah and Israeli forces engaging in direct confrontations that had further escalated the situation.

Although there have been no immediate reports of violations following the ceasefire’s commencement, signs of relief and celebration have emerged in Beirut, as many are hopeful that the truce will hold. Nevertheless, Israel has made it clear that any breach by Hezbollah could lead to retaliation. 

The ceasefire agreement mandates a two-month suspension of hostilities, during which Hezbollah is expected to withdraw its military forces from southern Lebanon, while Israeli troops will also be required to pull back to their side of the border. 

To enforce the ceasefire, additional Lebanese troops, along with United Nations peacekeepers, will be deployed in the southern region, and a monitoring panel, led by the United States, will oversee compliance.

Despite the relative calm, an Israeli military spokesperson cautioned against the return of residents to southern Lebanon, stating that the area remains under Israeli military surveillance. 

This came just hours after Israel had launched its heaviest airstrike campaign on Beirut, marking the most intense bombardment of the city since the conflict’s inception. 

Local authorities reported at least 42 deaths from the airstrikes, which had targeted various locations across the country.

While the ceasefire brings a much-needed respite to Lebanon, it does not address the ongoing and devastating war in Gaza, where Hamas continues to hold hostages, and the conflict remains unresolved. 

Lebanon’s caretaker Prime Minister Najib Mikati has welcomed the truce, describing it as a vital step toward restoring stability and enabling the return of displaced citizens to their homes.

Hezbollah has officially stated its acceptance of the ceasefire but has indicated that it is still reviewing the agreement’s final terms. A senior official from the group, Mahmoud Qamati, emphasised that while Hezbollah desires an end to hostilities, it would not accept any violations of Lebanon’s sovereignty. 

The group’s forces are required to withdraw to positions north of the Litani River, which is located roughly 30 kilometres from the border.

This development comes after a year of escalating violence, sparked by Hezbollah’s retaliatory actions in northern Israel on October 08, 2023, following the Hamas-led attack on Israel. Since then, both parties have exchanged frequent artillery fire, further intensifying the regional crisis.

Election Commission ponders dates for LG Polls amid examination concerns

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By: Isuru Parakrama

November 28, Colombo (LNW): The Election Commission is currently deliberating on suitable dates for the upcoming local government elections, with a focus on ensuring that the elections do not clash with ongoing examination schedules.

In a meeting held yesterday (27) chaired by R.M.A.L. Ratnayake, the Commission discussed various aspects of the electoral process, including timing and logistics, while taking into account the importance of not disrupting academic activities.

While no definitive date for the elections was set during the meeting, the Chairman assured that the Commission will reconvene in the near future to finalise the election schedule.

He reiterated that the urgency of holding the local government elections is underscored by a ruling from the Supreme Court, which has directed that the elections be held without unnecessary delays.

The final decision on the election date is expected to be reached shortly, with the Commission prioritising both the constitutional mandate and the academic calendar.

Moody’s reviews SL’s credit rating for potential upgrade following debt restructuring efforts

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By: Isuru Parakrama

November 28, Colombo (LNW): Moody’s Investors Service has announced that it is reviewing Sri Lanka’s Ca long-term foreign currency rating for a possible upgrade, a move triggered by the government’s recent bond-exchange offer.

This development comes after the country launched the bond swap on Tuesday, a key component of its ongoing debt restructuring programme, which is aimed at addressing its $12.55 billion external debt.

The bond exchange is an integral step in Sri Lanka’s efforts to stabilise its economy and navigate its financial challenges.

This restructuring initiative follows the country’s historic default on its foreign debt in May 2022, which marked a critical point in Sri Lanka’s economic crisis.

The default was triggered by a crippling debt burden, exacerbated by dwindling foreign exchange reserves and mounting fiscal pressures.

As part of the restructuring process, the Sri Lankan government has also introduced new US dollar-denominated debt instruments, which Moody’s has provisionally rated at Caa1.

Severe weather disrupts SL: Thousands of families affected by floods, heavy rains

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By: Isuru Parakrama

November 28, Colombo (LNW): Adverse weather conditions have caused widespread disruption across Sri Lanka, with 20 districts experiencing significant impact.

According to the Disaster Management Centre (DMC), a total of 80,642 households in 166 Divisional Secretariat divisions have been affected by the ongoing storms and flooding.

The DMC has reported that 276,550 individuals are currently grappling with the effects of the extreme weather, and 16,553 people from 5,305 families have been forced to seek shelter in safer locations.

In addition to the immediate challenges posed by the heavy rainfall, the Irrigation Department has raised concerns about the ongoing flood risks in low-lying areas near reservoirs.

G.W.A. Sakura Dilthara, an Irrigation Engineer, warned that rising water levels in key rivers, particularly the Deduru Oya and the Mahaweli River, are likely to worsen the flooding in the surrounding regions.

The increased water flow poses a serious risk to communities living near these watercourses, potentially leading to further displacement and damage to property.

The situation remains dire, with authorities urging the public to stay alert and take necessary precautions as the rainfall continues.

Emergency services remain on high alert, working to support affected families and mitigate the risks posed by the relentless weather conditions.

Deep depression near SL intensifies: Heavy rain, strong winds expected in Northern, Eastern regions (Nov 28)

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November 28, Colombo (LNW): The deep depression over the southwest Bay of Bengal was located to 100 km northeast of Trincomalee at around 2.30 a.m. of 28th November 2024.

It is likely to move slowly, north-northwestwards closer to the east coast of Sri Lanka and intensify further into a cyclonic storm today (28th November).

Under influence of the system cloudy skies will prevail over most parts of the island, very heavy showers and strong gusty winds can be expected in Northern province and in Trincomalee district.

Showers or thundershowers will occur at times in Northern province and in Trincomalee district. Very heavy showers above 150 mm are likely at some places.

Showers will occur at times elsewhere of the island too. Heavy showers above 100 mm are likely at some places in North Central and North-western provinces and in and Matale and Kegalle districts.

Very strong winds of about (60-70) kmph can be expected at times over Northern, North-central, and North-western provinces and in Trincomalee district. strong winds of about (40-50) kmph can be expected at times elsewhere of the Island.

The general public is kindly requested to take adequate precautions minimise damages caused by temporary localised strong winds and lightning during thundershowers.

Sri Lanka Original Narrative Summary: 28/11

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  1. President Anura Kumara Dissanayake instructs officials to provide immediate relief to disaster-affected areas by gathering on-site information and strengthening grassroots-level mechanisms: emphasises ensuring shelter, food, water, and sanitation for affected populations, with a focus on the Northern and Eastern Provinces: also directs support for students facing Advanced Level exams and fishermen at sea.
  2. Opposition Leader Sajith Premadasa criticises the government for ignoring the people’s mandate and following former President Ranil Wickremesinghe’s path: accuses the government of failing to deliver promised relief, including reducing electricity and fuel prices, while becoming subservient to IMF directives: emphasises the need for tax reforms to ease the public’s burden and criticises the government’s lack of transparency and meaningful reforms.
  3. Geethanath Cassilingham, a Sri Lanka Podujana Peramuna (SLPP) member, criticises Northern Province MPs from the National People’s Power (NPP) for failing to assist those affected by Cyclone Fengal: With over 250,000 people impacted by severe floods, accuses the NPP MPs of prioritising photo opportunities over providing aid, while the SLPP has actively delivered relief: calls for responsible governance from lawmakers.
  4. The Department of Meteorology issues a “Red” advisory for Sri Lanka, warning of a deep depression in the southwest Bay of Bengal, expected to intensify into a cyclonic storm: The system will bring heavy showers, strong winds, and rough sea conditions, especially in the Northern, Eastern, and Central provinces: Affected communities are advised to stay alert, avoid coastal areas, and follow future advisories.
  5. The National Building Research Organisation (NBRO) issues updated landslide warnings for nine districts, including Red Notices for divisional secretariats in Kandy, Matale, Nuwara Eliya, and Kegalle: Following rainfall of over 150 mm in the past 24 hours, residents are urged to stay alert and evacuate to safe areas to avoid the risks of landslides, rockfalls, and ground subsidence.
  6. Australia offers technical support to Sri Lanka in areas such as national security, maritime affairs, digitalisation, vocational education, public sector modernisation, and energy: During a meeting with Sri Lanka’s Secretary to the President, Dr. Nandika Sanath Kumanayake, Australia’s High Commissioner Paul Stephens expresses support for Sri Lanka’s corruption-free governance approach and the “Clean Sri Lanka” initiative, emphasising the 75-year bilateral relationship.
  7. On November 26, the Central Bank’s Monetary Policy Board decided to ease its monetary policy by setting the Overnight Policy Rate (OPR) at 8.00%, reducing it by 50 basis points: This decision was based on favorable inflation trends, better-than-expected external developments, and the need to support economic growth while aiming for an inflation target of 5%.
  8. Dr. Kapila Kannangara, Director of Health Services for Sabaragamuwa, reports Ratnapura District has seen the highest number of leptospirosis cases this year, with 1,882 infections and 22 deaths: High-risk areas include Eheliyagoda and Kiriella: warns of severe complications from untreated leptospirosis and advised taking Doxycycline as a preventive measure before fieldwork to reduce infection risk.
  9. President Anura Kumara Dissanayake appoints new Secretaries to two key ministries: Mr. K.R. Uduwawala will serve as Secretary to the Ministry of Environment, and Mr. Y.L. Mohamed Nawawi will be Secretary to the Ministry of Science and Technology: The appointment letters were handed over on November 27 by Secretary to the President, Dr. Nandika Sanath Kumanayake.
  10. On the first day of the Test in Durban, Sri Lanka’s seamers, led by Vishwa and Asitha Fernando, made early inroads, reducing South Africa to 80 for 4 before rain halted play: Vishwa was particularly impressive, taking the wicket of Tony de Zorzi: Temba Bavuma survived two close calls, and despite Sri Lanka’s disciplined bowling, play was called off early due to rain.

Heavy Rains Disrupt Daily Life In Colombo: PHOTOS

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Several areas in Sri Lanka, including Colombo, have been significantly affected by continuous heavy rains, causing disruptions to daily activities and travel. Low-lying areas have experienced localized flooding, while reports indicate traffic congestion in urban centers due to water-logged roads.

Authorities have urged residents in flood-prone zones to remain cautious and adhere to weather alerts issued by the Meteorology Department. Emergency response teams have been deployed to assist those in need.

If you wish to report similar incidents or offer assistance, please contact Angela at +94 77 472 1306.

Below are some images and videos taken at Kolonnawa area, Colombo.

IMF Highlights Key Progress in Sri Lanka’s Debt Restructuring 

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IMF Managing Director Kristalina Georgieva underscored the importance of continued international support and creditor cooperation in advancing Sri Lanka’s economic reforms and restoring debt sustainability. 

Speaking to the financial community, she emphasized that agreements reached by Sri Lanka’s authorities with external bondholders and local creditors mark significant progress in the country’s debt restructuring efforts.

The International Monetary Fund (IMF) has been backing Sri Lanka’s ambitious reform agenda through a four-year Extended Fund Facility (EFF) worth approximately $3 billion, approved in March 2023. 

This program aims to restore debt sustainability, stabilize macroeconomic conditions, and improve governance. Sri Lanka has made encouraging strides, with economic recovery underway, low inflation levels, and reserve accumulation

 IMF staff recently reached an agreement for the third program review, signaling ongoing progress.The debt restructuring milestones include Sri Lanka’s June 2024 memorandum of understanding with the Official Creditors Committee (OCC) and an agreement with China EXIM Bank. 

These commitments are designed to align debt treatments with IMF program parameters. Following extended discussions, agreements with both the Steering Committee of the Ad Hoc Group of external bondholders and the Local Consortium of Sri Lanka were finalized, a development the IMF described as pivotal.

Georgieva stated that these agreements, underpinned by IMF policies, will provide substantial external debt service relief, further contributing to the country’s efforts to regain financial stability. 

However, she stressed that swift execution of debt restructuring with strong creditor participation is essential for the program’s success. Parallel progress on other debt restructuring efforts remains a critical part of this collective endeavor.

The Sri Lankan authorities reaffirmed their commitment to structural reforms, aiming to transition the economy toward sustained and high growth. 

Georgieva noted that international financial institutions, official creditors, and bondholder participation in a debt exchange aligned with sustainability goals are integral to the reform efforts’ success.

The IMF reiterated its dedication to supporting Sri Lanka during this transformative period. “The IMF remains a steadfast partner in assisting Sri Lanka and its people to achieve their economic and social reform goals,” Georgieva said.

 Sri Lanka’s reform program continues to demonstrate positive momentum, with IMF staff evaluations affirming that recent agreements align with the objectives of restoring debt sustainability. Georgieva called on all stakeholders to capitalize on this progress and ensure collective action for successful debt restructuring.

As Sri Lanka moves forward with its ambitious agenda, the IMF’s support remains pivotal in helping the nation overcome economic challenges and build a stable and resilient future.

Board of Investment to strengthen Sri Lanka  Export Competitiveness

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Sri Lanka’s Board of Investment (BOI) is intensifying efforts to resolve key challenges undermining the growth and competitiveness of the country’s export industry.

 In a recent meeting, BOI Chairman Arjuna Herath engaged with Sri Lanka Shippers’ Council (SLSC) Chairman Sean Van Dort, Joint Apparel Association Forum (JAAF) Secretary General Yohan Lawrence, and Brandix Group Head of Logistics Taiyoob Ahamed to address critical concerns.

The discussions highlighted several pressing issues affecting exporters. Persistent economic instability, high inflation, and currency depreciation continue to raise production costs, while limited access to foreign exchange hampers the import of essential raw materials. Inadequate infrastructure, such as underdeveloped transport systems, energy constraints, and congested ports, further impedes efficiency, increasing logistics costs. 

Delays in customs clearance and over-reliance on traditional exports like apparel, tea, and rubber compound these challenges, exposing the economy to global demand fluctuations and sector-specific shocks.

Security concerns emerged as a major topic, particularly pilferage at key inspection points. The SLSC reported significant thefts at the Central Verification Terminal (CVT), allegedly involving Customs and BOI officials, as well as incidents of high-value merchandise theft at the Bandaranaike International Airport (BIA) Cargo Village. 

These thefts have led to international buyers filing shortage claims, threatening Sri Lanka’s reputation and export revenues.

To mitigate these risks, the SLSC proposed installing CCTV systems at inspection points, including CVT and BIA. “The lack of surveillance jeopardizes the integrity of our supply chain, eroding international buyer confidence and affecting revenues,” stated an SLSC representative.

The SLSC also emphasized the urgent need for digitalization within the BOI to streamline operations. Transitioning to an online application system was recommended to reduce inefficiencies, minimize delays, and improve transparency.

 SLSC Chairman Sean Van Dort remarked, “Digitalization will benefit the entire export industry, positioning Sri Lanka as a globally competitive and agile economy.”

Acknowledging these concerns, BOI Chairman Herath assured stakeholders of his commitment to addressing the issues. He confirmed that digitalization initiatives are already underway and pledged to accelerate progress.

 Herath also supported enhanced security measures, underscoring the need for continuous collaboration between the BOI and industry representatives to ensure mutual growth and transparency.

 By addressing infrastructure inadequacies, enhancing security, and embracing digital transformation, Sri Lanka aims to safeguard its position in the global market and boost export competitiveness.