Auto Woes

May 23, 2013 (LBO) – Sri Lanka’s Diesel and Motor Engineering Company Plc, has reported losses of 36 million rupees in the March 2013 quarter down from profits of 427 million rupees, following a tax hike which hit the auto market.

Taxes on cars were raised despite warnings from the both the International Monetary Fund and analysts who said the tax hike would hit economic activity state tax revenues and worsen a downturn by keeping interest rates higher than needed.

Higher imports during a BOP crisis is a symptom of credit growth stemming mostly from low interest rates and central bank credit (printed money).

Corrective measures, which include interest rates, energy prices and allowing the rupee to fall in line with the pressure generated by printed money, automatically curbs imports and slows credit driven activity without any need to kill imports through prohibitive taxes.

The group reported losses of 90 cents per share in the quarter. The stock was quoted at 595.10 down 4.50 rupees on Thursday.

For the year to March it reported earnings of 52 rupees per share on total profits of 434 million rupees, down from 3.5 billion rupees a year earlier.

Last year’s profits included an 879 million rupees gain