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EPF FUND INVESTMENT POLICY

Do you know what is the investment policy of Employees provident fund ( EPF) which is governed by Central bank of Sri lanka.

The EPF will take a long term view of both the local and global market conditions and pursue innovative and diversified fund management strategies to enhance its returns in a declining interest rate environment while ensuring the safety and growth of the Fund. These strategies would include, but not limited to

 Investments in fixed income government securities, with short, medium and long term maturities to ensure high returns, liquidity considerations, growth and safety of the Fund.

 Investments on equities in different sectors to ensure long term growth and income to the Fund.

 Investments on debt securities such as corporate debentures, trust certificates and commercial paper to earn higher income and to be a partner in developing the debt securities market which would in return benefit the Fund.

 Investments in capital intensive projects and housing market. In view of minimizing the risk of concentration of investments on limited sectors, the IC will be expected to consider the developments of the emerging market environment. In many successful countries in achieving high economic growth, pension funds have played an important role in developing capital and housing markets, both of which are required for sustainable economic growth by way of supplying long term funds/liquidity to those markets. Hence, EPF would also allocate an appropriate percentage of its Funds for such investments and would endeavour to popularize capital and housing markets, which would be to the ultimate benefit of the EPF members. 

 Investments in special purpose vehicles. The EPF will also be expected to consider the establishment of a few special purpose vehicles (SPVs) that would specialize in management of investments based on different risk appetites and allocate funds for such SPVs so that those could undertake investments in selected investment instruments.

 Investment in foreign assets. EPF does not yet have exposure to the foreign exchange markets or foreign assets. However in the future, the Fund will be expected to explore alternative investment opportunities and therefore, shall train the required personnel so that they would be equipped with the skills necessary to face the emerging challenges in regard to foreign investment as well.

 

Central Bank reduces Statutory Reserve Requirement

Since December 2012, in response to the reasonably stable inflation prevailing in the country for a prolonged period of time, the Monetary Board has been gradually easing its monetary policy stance, with two reductions in the policy rates and the removal of the credit ceiling. In keeping with such policy, an adjustment of general lending rates has taken place, albeit rather slowly. At the same time, the Monetary Board has noted with some concern that the spread between deposit and lending rates in Sri Lanka is still considerably higher than those of regional economies. While such situation may signify a comparatively lower efficiency of financial intermediation in Sri Lanka, a further contributory factor was considered to be the comparatively higher SRR of Sri Lanka in relation to other emerging economies.

Accordingly, at its meeting on 25th June 2013, the Monetary Board was of the view that a reduction of the SRR would enable the banking sector to reduce lending rates further, while also reducing the interest rate spread. Hence, the Monetary Board decided to reduce the SRR on all rupee deposit liabilities of commercial banks by 2 percentage points to 6 per cent with effect from 1st July 2013, thereby bringing the SRR in line with several other emerging peer economies.

 

Along with the downward adjustments to policy interest rates of the Central Bank since December 2012, the current reduction in the SRR and further improvements in banking sector efficiency are expected to reduce market lending rates considerably, enabling the growth of credit to the private sector to pick up in line with the macroeconomic projections for the year.

Moody’s change of Sri Lanka’s Sovereign Rating Outlook

The Moody's rating agency graded down the position of the the Sri Lankan economy to be 'stable' from being 'positive'  2nd July 2013.

"The latest move by Moody's of changing the outlook on Sri Lanka's B1 foreign currency sovereign rating from 'Positive' to 'Stable', is ill-advised and backward looking, and is not a proper reflection of the external position and the recent improvements in the Sri Lanka economy," said the Central Bank of Sri Lanka (CBSL) in a statement.

On Moody's assertions on the external payment position, the CBSL said that the agency had disregarded the strong consolidation of international reserves in terms of standard reserve adequacy measures has taken place since June 2012, when Moody's reaffirmed Sri Lanka's Outlook as 'Positive'.

The CBSL said that Sri Lanka's external sector has performed satisfactorily in the first four months of 2013, with earnings from tourism continuing to grow with increasing recognition of Sri Lanka as an attractive tourist destination.

Workers' remittances continuing to rise, supported by the diversification of migrant destinations and further expansion of formal channels for remitting money it said.

"These developments show that Sri Lanka is on a clear path of fiscal consolidation, and hence, the Moody's statement that there is a slowdown in the pace of fiscal consolidation, is not justifiable" said the CBSL.