Rs. 5000 allowance for low income families seen as potentially destabilizing

By Hiran H.Senewiratne

The government is not interested in resolving the current burning macro and micro economic issues. A Cabinet proposal to provide a Rs 5000 allowance to 3.1 million identified low-income families as a bonus for the upcoming Sinhala and Tamil New Year will make the situation worse. Because printing further rupees/money to provide this amount, will once again create inflationary and foreign reserve pressure in the country, stock market analysts.

Yesterday the CSE commenced its trading with a marginal gain but did not sustain it for a long period. At 1 pm S and P SL20 was down by less than five per cent, thus, triggering a circuit breaker for about half an hour, stock market analysts said. Investor sentiment is dwindling due to weak macroeconomic conditions with the unprecedented depreciation of the rupee against the dollar, stock market analysts said.

Amid those developments both indices moved downwards. The All- Share Price Index went down by 442 points and S and P SL20 declined by 153.5 points. Turnover stood at Rs 2.7 billion with two crossings. Those crossings were in Seylan Bank, which crossed three million shares to the tune of Rs 106.8 million, its shares traded at Rs 35.5 and Melstacorp 750,000 shares crossed to the tune of Rs 33.7 million, its shares traded at Rs 45.

In the retail market, top seven companies that mainly contributed to the turnover were; Expolanka Holdings Rs 543 million (2.1 million shares traded), Browns Investments Rs 202 million (21.7 million shares traded), LOLC Holdings Rs 192 million (259,000 shares traded), LOLC Finance Rs 163 million (14.1 million shares traded), Royal Ceramic Rs 121..3 million (2.5 million shares traded), JKH Rs 92 million (596,000 shares traded) and CT Holdings Rs 77.5 million (500,000 shares traded). During the day 265 million shares changed hands in 29000 transactions.

The Sri Lanka rupee was quoted at 285/310 to the US dollar in the spot market yesterday, while bond markets were mostly inactive with the ongoing bond auction, dealers said.

Commercial Banks were offering to sell dollars for telegraphic transfers at Rs 299 rupees and buying between Rs 275/289 .The Central Bank indicative spot rate was Rs 294.98 flat from the previous day.

Sri Lanka’s rupee has been made more flexible but a clean float has not yet been established. Economists and analysts have urged the Central Bank to raise rates and halt a surrender rule that is taking dollars away from the banking system and creating rupees.