ECONOMYNEXT - Sri Lanka's rupee recovered amid intervention and some exporter selling after the central bank talked up the rupee saying it was expecting 1.8 billion US dollars in inflows, while stocks closed lower, dealers and brokers said.
The rupee closed at 157.85/158.00 rupees against the US dollar, up from Wednesday's close of 158.20/40 rupees.
The aggregate overnight balance of the banking system turned negative for the first time since the mini-run on the rupee began after seasonal holidays in April.
On Thursday the central bank talked up the rupee arguing that underlying economic fundamentals did not warrant the rupee's fall.
The monetary authority said it was expecting inflows of 1.8 billion US dollars in the coming weeks, which brought back exporters from the side lines, dealers said.
Heavy moral suasion had also been used on dealers.
The central bank cut rates and injected tens of billions of rupees to enforce low rates the first week of April, amid a festival demand for cash, triggering a run on the rupee after the New Year when the rupee was allowed to float with 20 to 30 billion rupees of excess liquidity.
It later emerged that a maturing bond had been repaid with borrowings from the banking system.
On Thursday for the first time since the mini-run on the rupee, liquidity was a negative 400 million rupees, down from 11.8 billion rupees a day earlier. Banks borrowed 14.9 billion rupees from the central bank's reverse repo window and deposited 9.5 billion rupees.
A further 5.0 billion was mopped up overnight at 7.50 percent. Analysts say all such moves tend to support the rupee.
Gilt yields closed steady in the secondary market for government bonds.
A five-year bond maturing in 2023 closed at 10.40/45 percent in two-way quotes, down from 10.42/48 percent the previous close.
A ten-year bond maturing in 2028 closed at 10.65/75 percent, unchanged from the previous close.
The Colombo All Share index edged 0.16 percent lower, down 10.29 points to 6,473.18, and the S&P SL20 of more liquid stocks closed 0.29 percent lower, down 10.67 points to 3,609.88.
In equities market turnover was 484.6 million rupees, down 6.4 percent from the previous day.
Selling in John Keells Holdings (down 1.30 rupees to 157.70 rupees), Commercial Bank (down 70 cents to 133.30 rupees) and Melstacorp (down 50 cents to 57.50 rupees) contributed to the benchmark index decline.
Net foreign selling was 77.8 million rupees against, up from selling of 7.3 million rupees the previous day.
Foreign selling in John Keells Holdings was 107 million rupees.
Two off-market negotiated trades, or crossings, in Distilleries totalled 148.9 million rupees and was 31 percent of market turnover.
Distilleries gained 40 cents to close at 21.40 rupees. (COLOMBO, 17 May 2018)