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UPDATE 1-Sri Lanka trade deficit widens, but sees no pressure on rupee
June 24, 2013 / 4:47 AM / 4 years ago

UPDATE 1-Sri Lanka trade deficit widens, but sees no pressure on rupee

* April trade deficit widens 19.2 pct yr/yr

* Jan-April trade deficit narrows

* does not expect fresh pressure on currency (Adds comments from governor on rupee)

COLOMBO, June 24 (Reuters) - Sri Lanka’s trade deficit widened for the first time in eight months in April, but the central bank shrugged off the likelihood of fresh pressure on the rupee currency, which is hovering at its weakest levels in nearly seven months.

The trade deficit widened for the first time since August 2012, expanding 19.2 percent to $825.4 million in April from $692.6 million a year earlier.

April imports rose 5.7 percent from a year earlier to $1.52 billion, the first monthly growth in 13 months, while exports continued to contract since February 2012, falling 6.8 percent to $696.6 million, data showed on Monday.

The signs of a possible recovery in imports come amid the central bank’s dovish monetary policy stance, and as the rupee trades at its lowest since last December.

“The rupee won’t be pressurised because of the widening trade deficit. Now we have more inflows from tourism, remittances, and foreign direct investments,” Central Bank Governor Ajith Nivard Cabraal told Reuters.

“The economy has diversified a lot. Though the rupee has weakened against the U.S. dollar, it has appreciated against many other currencies. So, we can withstand any shocks.”

The rupee has been weakening due to demand from foreign investors who have been shifting to Sri Lanka’s treasury bills while selling longer tenure T-bonds, as a rise in U.S. Treasury yields has prompted many offshore investors to rush to the exits.

In April, net foreign inflows into government treasury bills and bonds fell 16.1 percent to $144.9 million compared to the same month a year ago, while inflows to government’s long-term loans fell 13 percent to $95.2 million.

However, the trade deficit has narrowed 14.6 percent to $2.97 billion in the first four months of 2013 from $3.47 billion in the same period a year earlier.

“Exports are under pressure mainly because of the conditions overseas. With the rupee weakening, there is a potential for export growth,” Danushka Samarasinghe, head of research at TKS Securities told Reuters.

Reporting by Shihar Aneez; Editing by Kim Coghill

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