ECONOMYNEXT – Distilleries Company of Sri Lanka Plc, a bellwether alcohol firm that usually shows the collapse of demand and recovery as a bubble triggered by rate cuts end in a currency crisis, reported earnings of 4.49 billion rupees for the March 2025 quarter, up 19-pct from a year earlier.
Revenues grew 31 percent to 36.7 billion rupees in March quarter and cost of sales grew 65 percent to 6.5 billion rupees or a gain of 8.84 billion rupees.
Direct taxes grew 34 percent to 22.6 billion rupees, or a rise of 5.7 billion rupees.
At group level, where comparable data was not available for the prior year, net profits were 4.08 billion rupees.
The March quarter sales mostly kept up with the December revenues as the central bank missed high 5 percent inflation target, by operating broadly deflationary policy, though concerns are now emerging.
When the 5 percent inflation target is missed, salary hikes of wage earners remain ‘real’.
In the December 2024 quarter revenues grew to 37.1 billion rupees, from 30.2 billion rupees in 2023 amid a gradual return of demand, with a probably shift from moonshine, as the central bank missed its 5 percent inflation target and kept prices stable.
Distilleries revenues usually collapse as the central bank cuts rates using its ‘flexible inflation targeting’ and ‘potential output targeting’ statistical doctrine (data driven monetary policy) triggering a currency crisis.
Revenues in the March 2023 quarter fell to 30.6 billion rupees from 33.6 billion rupees in 2022 as the currency collapsed under the weight of direct and open market operations.
In the March 2023 quarter revenue fell further to 27.5 billion rupees as taxes were hiked to bridge the deficit and pay state worker salaries. As the currency crisis driven by rate cuts begins to bite, the economy slows and tax revenues fall, requiring a tax hike.
It takes from 18 to 24 months for spending power to recover from the inflationary rate cut driven currency collapse as salaries catch up.
When inflationary rate cuts are first made with direct or open market operations, borrowers from the banking system who use the printed money first benefit, in what classical economists broadly call the Cantillon effect (after French-Irish classical economist Richard Cantillon).
READ MORE: What is the Cantillon Effect?
The general public pays the price later in snail mail style after leveraged entities benefit from the injected money of open market operations.
Pushing interest rates down with reserve money expansion (open market operations in modern parlance) was first proposed by Scottish Mercantilist John Law.
Classical economists, including Adam Smith and David Ricardo, however have pointed out that interest rates are a function of capital and not reserve money (circulting medium).
Cantillon himself is reputed to have made money the Missippi bubble that followed John Law’s ‘rate cuts’ with liquidity operations. The collapse of the Missippi bubble, led to a worsening of the French government finances and an economic downturn. (Colombo/May30/2025)
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