Thursday July 18, 2019

Sri Lanka rupee opens weaker

Sep 07, 2018 10:58 AM GMT+0530 | 0 Comment(s)

ECONOMYNEXT - The Sri Lanka rupee opened weaker against the US dollar on Friday dealers said, losing some of the gains made after the Central Bank forced commercial banks to sell dollar holding by cutting their overnight positions.

The Sri Lanka rupee opened weaker at 161.60/75 rupees against the US dollar in the spot market on Friday, dealers said.

The rupee closed at 161.40/60 rupees against the greenback on Thursday, gaining sharply from an intraday low of 162.35/50 rupees after the Central Bank tightened limits on overnight dollar holdings of commercial banks, called Net Open Positions (NOPs).

Analysts have warned that cuting dollar positions sharply reduces the depth of the market, worsening volatility requiring more interventions by a central bank to maintain stability.

In recent weeks the rupee came under pressure after excess liquidity of over 40 billion rupees were generated from a currency swap.

Excess overnight liquidity was around 10 billion rupees on 25 July when the US dollar traded at 159.60/65 rupees and has gradually increased peaking at 58.42 billion rupees on 8 August.

Analysts have said that either the cash generated from swaps should be sterilized or the currency should be defended at the rate of the swap to prevent a steep fall.

Instead, excess liquidity was allowed to remain and pressure the currency via credit to importers and the rupee was made flexible, after the swap, which is a form of peg defence.

Dealers said banks had been buying dollars to create buffers against a weakening currency ahead of the Christmas season import demand.

Thursday's Central Bank directive on lower Net Open Positions saw commercial banks frantically unwind their excess dollar positions in the market which took the rupee to an intraday high of 160.80/161.20 rupees against the US dollar.

However, the currency was under pressure again from importer demand on Friday but dealers said speculation would be lower and exporters are expected to convert some of their earnings given the Central Bank's actions to curb market speculation.

Overnight excess liquidity increased by 3.83 billion on Thursday to 22.76 billion rupees; during the day, the Central Bank had absorbed excess liquidity of 17.61 billion rupees via repo auction and liquid banks parked a further 5.15 billion rupees in the Central Bank overnight deposit window.

Gilt yields were steady in the secondary market for government bonds Friday.

A five-year bond maturing in 2023 opened at 9.95/10.00 percent in two-way quotes, unchanged from the previous day's close. A ten-year bond maturing in 2028 opened at 10.24/30 percent, also unchanged from the previous day.

In equities, Colombo's All Share index gained 0.02 percent in early trading, up 1.07 points to 6,113.39, and the S&P SL20 of more liquid stocks was up 0.05 percent, gaining 1.69 points to 3,223.59.

Sri Lanka Telecom was up 50 cents to 22.40 rupees and Commercial Leasing and Finance gained 10 cents to 2.90 rupees.

Melstacorp was trading 50 cents higher at 50.50 rupees. (COLOMBO, 07 September 2018)


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