“Consumer confidence on the rise as economy signals recovery”
Sri Lanka’s consumer confidence remained positive, as the economy signals recovery and this is also reflected by the steady uptrend in the index since January 2024 consumer demand says First Capital Research.
Consumers have shown a fast adoption of the current economic conditions following the value-added tax (VAT) hike while expectations of sustaining sales volumes over the period ahead amidst reduced operating costs through reduction in electricity tariff and fuel prices have contributed to the rise in business confidence. Anticipated ongoing positive consumer sentiment is poised to drive imports, buoyed by strengthening purchasing power, thereby exerting pressure on the rupee.
Furthermore, heightened tourism activity may amplify consumer demand for imported goods, potentially widening the trade deficit and further depreciating the Sri Lankan rupee.
As domestic spending rises, there is a likelihood of greater preference for imported goods and services, consequently driving import demand whilst off-peak tourism season may place downward pressure on the Sri Lankan Rupee in the latter half of 2024. A strong upturn in tourism earnings and worker remittances has led to a currency appreciation.
The Sri Lankan Rupee has been gradually appreciating against the US Dollar since November 30 last year, marking a second instance of such appreciation.
This trend is seen as a positive sign of economic recovery, supported by a positive balance in the Current Account driven by increased remittances and robustly rising tourism earnings.
The Central Bank’s efforts to bolster foreign reserves by purchasing Dollars from the market have contributed to this appreciation. Moreover, the financial aid from multilateral agencies like IMF, World Bank and ADB during December 23 has further supported CBSL to strengthen its reserve positions thereby supporting the appreciation in the rupee.
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