Weak currency, rise in oil prices to burden economy - Analysts | Sunday Observer

Weak currency, rise in oil prices to burden economy - Analysts

28 February, 2021

The economy could face severe pressure as global commodity prices including oil are again on an upward trajectory following the gradual  recovery of economic activities across the globe.

Oil prices jumped by over $1 early last week reaching the mid USD 60 levels per barrel. Crude oil in the OPEC Basket touched USD 62 while Brent moved up to USD 66.

According to global reports this was due to  slow US output after a deep freeze in Texas shut crude production last week.

The weak currency will increase the oil import bills  as the Rupee continues to hover in the mid 190 levels.

Brent crude was up $1.06, or 1.6%, at $65.30 a barrel by 0204 GMT, after earlier hitting a high of $66.38. US crude rose 81 cents, or 1.4%, to $62.51 a barrel, after hitting a session high of $62.73. Both benchmarks have risen over 1% after climbing nearly 4% in the previous session.

Sri Lanka’s foreign debt repayment and dwindling foreign reserves could worsen the plight of the economy.

The country’s foreign reserves stood at USD 4.8 billion as at end January 2021.

Foreign reserves stood at USD 5.7 billion towards the end of 2020.

State Minister of Finance Ajith Nivard Cabraal said Sri Lanka has  to re-pay only around USD 1.0 to 1.5 billion each year until 2029 and that the economy would generate forex inflows of around USD 32 billion this year and possibly about USD 2-3 billion more than that, each year. 

Headline inflation decreased to 3.7 per cent in January 2021 from 4.6 per cent in December 2020 due to the statistical effect of the high base prevailed in January 2020. Meanwhile, Food inflation (Y-o-Y) decreased to 5.9 per cent in January 2021 from 7.5 per cent in December 2020.

Non-Food inflation (Yo-Y) decreased to 1.8 per cent in January 2021 from 2.2 per cent in December 2020. The change in the NCPI measured on an annual average basis decreased to 5.8 per cent in January 2021 from 6.2 per cent in December 2020. 

On the global front, the positive momentum continues in the oil complex, with investors unabashedly predisposed to a bullish view according to global markets strategists.

Goldman Sachs Commodities Research raised its Brent crude oil price forecasts by $10 for the second and third quarters of 2021, citing lower expected inventories, higher marginal costs to restart upstream activity and speculative inflows.

The Wall Street bank expects Brent prices to reach $70 per barrel in the second quarter from the $60 it predicted previously and $75 in the third quarter from $65 earlier.

Morgan Stanley expects Brent crude prices to climb to $70 per barrel in the third quarter on “signs of a much improved market” including prospects of a pick-up in demand.