Sri Lanka policy reversals seen eroding sentiment

Feb 14, 2012 (LBO) – Recent policy reversals by Sri Lanka’s government has dampened investor sentiment and could lead to lower consumer spending, slowing economic growth, a stock broker said. The government raised interest rates, moved closer to floating the rupee by stopping interventions to defend the currency and jacked up fuel prices in quick succession, TKS Securities said in a report.

The rapidity of the changes also hit stock market sentiment, worsening a slide.

“The swiftness of these directional change has taken the market and economic participants by surprise, which was evident with the Colombo bourse shaving off 8.5 percent in market capitalization since the beginning of February,” TKS Securities said.

“The increase in interest rates and the floating of the rupee went against the policies and forecasts put forward by the Central Bank during the past few months, hence creating a negative sentiment within the business and investing community in Sri Lanka.

“The past two weeks brought about marked changes in the interest rate environment, exchange rates and cost structures within the economy.”

The brokerage said the sharp upward revision in retail fuel prices o