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Oil Prices Up After Polls

A key indicator to watch is whether the government would increase petroleum prices after the end of the present local government elections due to rising oil prices in the international market.
Such an increase would cause supply side inflationary pressure on the economy.
The state owned Ceylon Petroleum Corporation is allegedly losing between Rs. 20-25 on a litre of refined petroleum oil at current prices (see also the business editorial). Meanwhile trading in the secondary bond market was sluggish, with the market awaiting the month end inflationary data before making their next move.
One source expected inflation to move up in this month and the next due to lower base figures in the corresponding periods last year, however another source said that food prices appeared to be stabilizing, a key driver of inflation these days in the aftermath of the recent floods which disrupted the flow of vegetables to the market, thereby causing supply side inflationary pressure on the economy.


The exchange rate which appreciated to the Rs. 109/90 levels against the greenback went down to the Rs. 110/15/25 levels in two way quotes in inter-bank trading at Monday’s close due to importer pressure, with the decline continuing in to the following day Tuesday as well, where the exchange rate was being quoted at the Rs. 110/40/50 levels in two way quotes.
However on Wednesday it went up to the Rs. 110/20/25 levels, before falling to the Rs. 110/25/35 levels the following day Thursday on the back of sluggish trading.
“Large volumes were traded in the market on Tuesday and Wednesday, some Rs. 120 million and Rs. 110 million respectively, whereas on Thursday it slipped to under Rs. 30 million probably due to the elections,” the source said.
Central Bank of Sri Lanka has made it clear to the market that it wants the exchange rate to operate within the Rs.109/90-110/50 band or face the risk of market intervention, he said. On Friday the exchange rate in two way quotes was being traded in the Rs. 110/30/40 levels on the back of increased activity.


Posted on Tuesday, March 22, 2011 @ 09:36:21 LKT


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