Aurelia Butler

COLOMBO (Reuters) – Sri Lanka’s parliament reconvened on Tuesday for the first time since violence flared last week and the prime minister quit, as his replacement warned that the country was in a precarious economic situation and down to its last day of petrol supplies. Ranil Wickremesinghe, the new prime minister, said in a televised address on Monday that the island nation had to face “unpleasant and terrifying facts”.”At the moment, we only have petrol stocks for a single day. The next couple of months will be the most difficult ones of our lives,” he said.Foreign reserves had come close to zero from $7.5 billion in November 2019, he added, with the country requiring $75 million in the next few days to keep the economy running. Essential medicines had run out.Power cuts could extend to as much as 15 hours a day because of the lack of fuel, which is mostly imported.Wickremesinghe said he planned to ask for foreign assistance, privatise SriLankan Airlines and seek parliamentary approval to increase Treasury bill issuance to 4 trillion rupees ($11.27 billion) from 3 trillion.”For a short period, our future will be even more difficult than the tough times that we have passed,” he said. More than a month of predominantly peaceful protests against the government’s handling of the economy turned deadly last week when supporters of former Prime Minister Mahinda Rajapaksa stormed an anti-government protest site in the commercial capital, Colombo. Days of subsequent clashes between protesters, government supporters and police left 9 dead and over 300 injured.Rajapaksa then resigned, leaving his younger brother Gotabaya Rajapaksa to rule on as president.Sri Lanka’s economic crisis, unparalleled since its independence in 1948, has come from the confluence of the COVID-19 pandemic, rising oil prices and populist tax cuts by the Rajapaksas.The chronic foreign exchange shortage has led to rampant inflation and shortages of medicine, fuel and other essentials, bringing thousands out on the streets in protest in the Indian Ocean nation, where China and India are battling for influence. Wickremesinghe’s four cabinet appointments to date have all been from the Rajapaksas’ Sri Lanka Podujana Peramuna party, to the dismay of protesters, who want to exile the family from the nation’s politics. He is yet to announce key portfolios including the crucial post of finance minister, who will negotiate with the International Monetary Fund for financial help.Former Finance Minister Ali Sabry had held preliminary talks with the multilateral lender, but he quit along with Mahinda Rajapaksa last week.($1 = 355.0000 Sri Lankan rupees) More

With inflation soaring to a record high of 7.5% in the euro zone last month, well above the ECB’s 2% target, policymakers are increasingly advocating a rapid unwinding of stimuli, and several want a rate hike as soon as July.”If it (normalisation) is done with the sustainability that we all want, and the ECB is working on it, it will mean increased intervention capacity of the central bank in the short and medium term,” the Bank of Portugal chief told reporters.Centeno said the decision on monetary policy will be collective, and that the ECB should communicate coherently the reasons behind its decisions to people and businesses.”Making very peremptory statements (about monetary policy) before we all have the same information can only result in noise,” he said, without specifying whose statements he was referring to.Dutch central bank chief Klaas Knot said earlier on Tuesday the ECB should raise its key interest rate by 25 basis points in July but should keep the door open to a 50-bps move if incoming data over the next few months suggests that inflation is “broadening further or accumulating”. More

A top European Central Bank official has raised the prospect of a half percentage point interest rate increase in July if inflation continues to climb, the first time such an aggressive shift has been mooted.Tuesday’s comments by Dutch central bank chief Klaas Knot, one of the more hawkish members of the ECB’s rate-setting body, sent ripples through financial markets, as the euro rose 1.1 per cent against the US dollar to $1.0546 and eurozone government bond prices fell.ECB president Christine Lagarde has signalled that the bank’s first rate rise for more than a decade is likely to occur at July’s governing council meeting. But she and many other policymakers have stressed they will move only “gradually” — indicating any change to rates will be in quarter-point increments.Knot’s comments make him the first ECB governing council member to say it could raise its deposit rate by half a percentage point in July. That would take the rate from minus 0.5 per cent to zero in a single move.“Based on current knowledge, my preference would be to raise our policy rate by a quarter of a percentage point — unless new incoming data in the next few months suggests that inflation is broadening further or accumulating,” he told Dutch TV programme College Tour. “If that is the case, bigger increases must not be excluded either.”Knot added: “In that case a logical next step would amount [to] half a percentage point.” Eurozone inflation for April reached 7.5 per cent — well above the ECB’s target rate of 2 per cent — and price pressures are continuing to build due to the fallout from Russia’s invasion of Ukraine and China’s coronavirus lockdowns.“This is the first such statement challenging the ECB’s commitment to gradual tightening,” said Frederik Ducrozet, a strategist at Pictet Wealth Management. “Now this is also a proposal that the doves can oppose. I would watch their reaction closely in coming days.”The ECB last raised rates in 2011, a move subsequently considered a mistake by many economists, since it prefigured the EU’s debt crisis. This time around, many of its officials — particularly southern European “doves” — emphasise the importance of proceeding with caution due to the risk of a eurozone recession.European government bonds declined in tandem with the euro’s rise following Knot’s comments, with the 10-year German Bund yield up 0.08 percentage points at 1.02 per cent. Expectations for ECB rate rises also ticked up, with money markets signalling expectations that the central bank will raise rates by 1 percentage point this year, from about 0.93 percentage points the previous day, according to Bloomberg data. The single currency has come under intense pressure this year on expectations the US Federal Reserve will tighten monetary policy much more quickly than the ECB and some eurozone policymakers worry that a weaker euro will fuel more inflation by raising import prices. The Fed raised its benchmark policy rate this month by half a percentage point for the first time since 2000 and sent a strong signal that it intended to increase it by the same amount at the next two meetings. But other monetary authorities, such as the Bank of England, have been more cautious in raising rates by a quarter percentage point at a time. Lagarde said last week that given growing uncertainty about growth, the ECB would pursue “gradualism concerning the pace of monetary policy adjustment”. More