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Biz sentiment at nine-month high 

03 Feb 2022

  • Formulation of new business strategies cited a reason
Despite the bleak outlook, the outcome of the latest LMD-Nielsen Business Confidence Index (BCI) survey paints “an ever so slightly more positive picture” – so much so that the index is now at a nine-month high.  The BCI nudged upwards by three basis points from the previous month to register 122 in January. The index stands at where it stood a year ago and is a healthy 14 points above its 12-month average of 108.  In a telltale sign of policy vacillation, the Central Bank of Sri Lanka (CBSL) hiked its policy rates by 50 basis points which is to 6.5% on 20 January in order to contain the nation’s balance of payments crisis and runaway inflation (14%). “The Monetary Board was of the view that the above measures will curtail the possible buildup of underlying demand pressures in the economy, which would also help ease pressures in the external sector, thus promoting greater macroeconomic stability,” the CBSL maintained. It added: “In keeping with this policy stance, the Central Bank expects a corresponding increase in interest rates, particularly in deposit rates, thereby encouraging savings while discouraging excessive consumption, which also fuels imports.”  For the sake comparison, the unique barometer of biz sentiment plummeted from 145 to 93 back in April 2020 when Sri Lanka’s “Covid-19 run” took off, and it has hovered at around the 90 mark when the second and third waves of the pandemic led to lockdowns and “travel restrictions”. So in that sense at least, the silver lining is in the relative quiet on the Omicron front although ominous warnings have been forthcoming from numerous authorities that the threat of another bout is ever-present. Meanwhile, NielsenIQ Director – Consumer Insights Therica Miyanadeniya noted: “While the Business Confidence Index has increased slightly, this sentiment isn’t shared by the general public as the Consumer Confidence Index (CCI) has dropped to an all-time low of 25.”  Miyanadeniya further noted: “Inflation and shortages of key commodities still persist.” Abounding sensitivities are the order of the day, given the mounting forex crisis and its impact on a multitude of daily essentials – including fuel. Beyond the suffering masses, there’s an increasingly edgy tourism industry, as key source markets such as Europe grapple with a rapidly spreading Omicron variant. In the January edition of LMD, it was noted that “the direction of the BCI is likely to hinge on how the Government plans to avert a state of economic failure”.  Miyanadeniya attributes the slight improvement in sentiment to “businesses formulating new strategies to salvage and improve on whatever has been lost due to the pandemic in 2021”.  The business community may well be taking a longer-term view, but it has to be said that until there’s a revival of Sri Lanka’s economy and an easing of the restrictions that the forex crisis has necessitated, there’s a limit to what degree such resilience can hold.
(LMD) 


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