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Thursday April 18th, 2024

Foreign investors sell more Sri Lanka rupee bonds after rate cut

ECONOMYNEXT – Foreign investors have sold another eight billion rupees worth Sri Lanka rupee bonds in the week to March 04, 2020, official data shows, taking the total sold since a rate cut on January 30 to 24.9 billion rupees (about 137 million US dollars).

Foreign investors also sold about 7 billion rupees in the week before the rate cut, where they held 114 billion rupees of bonds.

Dwindling Credibility

The latest sales bring down foreign held rupee bonds to about 83 billion rupees, or about 450 million US dollars.

Foreign investors held about 450 billion rupees in bonds at the beginning of 2015, having entered the country at a time when Sri Lanka’s soft-peg with the US dollar had more credibility.

However the rupee had rapidly collapsed from 2018, with two currency crises coming in rapid succession.

When a country does not have a working monetary policy framework (a consistent peg or a genuine floating rate) frequent currency collapses and exchange controls discourage capital inflows and economic growth is disrupted.

Monetary instability also triggers trade controls, which tend to hit growth.

When the credibility of the peg deteriorates and the currency depreciates, nominal interest rates tend to go up, analysts say.

Foreigners exited as rates were cut in early 2015, as credit picked up as the economy recovered strongly from a 2012/2012 currency crisis. At the time the existing rate ceiling was enforced with liquidity injections from a terminating term reverse repo deals.

In 2018 April, when the credit system was recovering from a 2015/2016 currency crisis, rates were against cut while liquidity injections were being made to enforce the existing ceiling rate of the policy corridor.

In January 2020, however the central bank was not printing money to enforce the earlier ceiling policy rate, but Sri Lanka’s rating is lower, and the outlook has also been cut after value added taxes were cut.

Foreign investors are also exiting Sri Lanka’s stock market with long-term investors cutting their positions in blue chip companies. (Colombo/Mar09/2020)

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Sri Lanka’s discussions with bondholders constructive: State finance minister

ECONOMYNEXT – Sri Lankan authorities continue to engage all debt restructuring negotiations in good faith, within principles of equitable treatment among creditors, and with maximum transparency within the norms of such negotiations, State Minister of Finance, Shehan Semasinghe has said.

“It is standard practice, when a representative group of bondholders is formed, to entertain confidential discussions with such group and its appointed advisors. In the case of Sri Lanka, the Ad Hoc Group of Bondholders represents holders controlling more than 50% of the bonds, which make them a privileged interlocutor for Sri Lanka,” Semasinghe said on X (twitter).

“It is well understood that given the price sensitive nature of the negotiations, and according to market regulations, discussions with the Group and its advisors are to be conducted under non-disclosure agreements. This evidently restricts the ability of the Government to unilaterally report about the substance of the discussions.

“The cleansing statement, which was issued on the 16th of April, at the conclusion of this first round of confidential discussions with members of the Group, aims at informing the Sri Lankan people, market participants and other stakeholders to this debt restructuring exercise, about the progress in negotiations. It provides the highest possible level of transparency within the internationally accepted practices in such circumstances.

“As informed in this statement, confidential discussions held in recent weeks with bondholders’ representatives proved constructive, building on the restructuring proposals presented by both parties. During the talks both sides successfully bridged a number of technical issues enabling important progress to be made. Sri Lanka articulated key remaining concerns that need to be addressed in a satisfactory manner.

“The next steps would entail further consultation with the IMF staff regarding assessments of the compatibility of the latest proposals with program parameters. Following these consultations, we hope to continue discussions with the bondholders with a view to reaching common ground ahead of the IMF board consideration of the second review of Sri Lanka’s EFF program.”

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Sri Lanka rupee weakens at 301.00/302.05 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 301.00/302.05 to the US dollar in the spot forex market on Tuesday, from 299.00/10 on Tuesday, dealers said. Bond yields were broadly steady.

A bond maturing on 15.12.2026 closed stable at 11.30/35 percent.

A bond maturing on 15.09.2027 closed at 11.90/12.05 percent up from 11.95/12.00 percent.

A bond maturing on 15.12.2028 closed at 12.10/20 percent down from 12.10/15 percent.

A bond maturing on 15.07.2029 closed at 12.25/40 percent.

A bond maturing on 15.03.2031 closed at 12.30/50 percent. (Colombo/Apr17/2024)

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Sri Lanka Treasury Bill yields down across maturities

ECONOMYNEXT – Sri Lanka’s Treasuries yields were down across maturities at Wednesday’s auction with the 3-month yield moving down 7 basis points to 10.03 percent, data from the state debt office showed.

The debt office sold all 30 billion rupees of 3-month bills offered.

The 6-month yield fell 5 basis points to 10.22 percent, with 25 billion rupees of bills offered and 29.98 billion rupees sold.

The 12-month yield dropped 4 basis points to 10.23 percent with 18.01 billion rupees of bills sold after offering 23 billion rupees. (Colombo/Apr17/2024)

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