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Frontier Economic Monthly - January 2017

​Key Takeaways

• -CBSL Road Map for 2017 highlights the need for a more flexible LKR which will likely see less intervention in the currency market; expect more volatility in the LKR and a bit more depreciatory pressure during the year as a result of this move
• -However, pressure on rates and LKR will be less in the near term given the USD 458mn SLDB issue which will likely take pressure off debt repayments in the next few months

• -CBSL expects to base its monetary policy decisions on achieving a pre-announced inflation target; inflation will likely become a key determinant in interest rate movements going forward. And given the explicit targets for inflation, it could provide market participants a relatively clearer direction of future monetary policy decisions
• Focus 1 – The Budget 2017 introduced a statement on “Tax Expenditure” for the first time in order to improve transparency and accountability in the tax system. This was one of the structural measures prescribed by the IMF program to reform the tax policy. Here we take a look at what a tax expenditure statement is and how it can help improve transparency and accountability.
• Focus 2 – Both oil and gold prices have been depressed for several years now. 2016 ended with what seemed to be the start of a commodity rally, catalyzed by the OPEC action and higher market activity in China. Will this rally prove to be strong and survive throughout the year, or will it prove to be short-lived? In this focus we take a look at what global analysts predict for these commodities in 2017.