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Frontier Economic Monthly - October 2016

​Executive Summary

​-CBSL’s focus on growth may be an indication that there could be no more rate hikes in the current cycle. The stance is supportive of our end-2017 base view - where we expect to see a decline in interest rates and a largely stable LKR with a bit more room for further depreciation - where a key assumption is that there will be no more monetary tightening by the CBSL.

-The IMF’s first review on the EFF program commends monetary tightening measures taken, but highlights the fiscal loopholes. 2017 budget will likely be a key focus in the next assessment.
-Government securities market continued to enjoy net foreign inflows in recent months. However recent weeks have seen a slowdown with the latest week recording a net outflow. On the other hand, FDIs into the country remains to be on a downward trend.

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Focus 1 – Emerging market (EM) assets have had a few rough years recently, recording significant foreign fund outflows over fears of US rate hikes. However, this year we saw a reversal of this trend with fund flows turning positive for the first time in few years. This focus takes a look at the EM fund flows so far in detail.

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Focus 2 – Here we analyse the electricity generation data published by the Central Bank (CBSL) to find out how significant coal power generation is in Sri Lanka and how its importance has evolved.