ECONOMYNEXT - Sri Lanka's rupee weakened to a new low of 165.30/60 rupees to the US dollar in early trading Tuesday after overnight money was quoted at around 8.0 percent in the interbank market, with bids for overnight repos at around 8.15 percent with no offers amid a liquidity shortage, dealers said.
The rupee fell sharply to a new record low of 165.00/30 rupees against the US dollar on Monday, amid continued liquidity injections by the central bank below the ceiling repo rate. The currency had closed Friday at 163.60/80 rupees against te greenback.
In recent days excess liquidity was maintained by the central bank with 8.0 percent money despite currency weakness. It is not clear why large volumes of money has been injected to keep money markets flushed with excess liquidity despite currency pressure. Sri Lanka's central bank however has ealier spoken in favour of currency depreciation.
On Monday there was a net short. Only for two days on September 12 and September 17 had there been a net short on the market. On other says money markets have been kept flushed with term reverse repo auctions.
The rupee has come under repeated pressure due to inconsistent policy by the central bank.
The rupee came under pressure this month, due to unsterilized excess liquidity from a currency swap. The central bank did not follow through with unsterilized sales to maintain credibility of the peg.
Bond yields are also rising amid the run on the rupee.
A three year bond maturing on 15.10.2021 was quoted at 10.30/37 up from 10.27/31 percent a day earlier. The bond was auctiondd at a weighted average yield of around 10.03 percent last week.
Five year bond maturing on 15.07.2023 was quoted at around 10.50/60 percent around the same as 10.45/55 percent yesterday.
A seven year bond maturing on 15.10.2025 was quoted around 10.65/75 percent. The bond was auctioned last week around 10.30 percent.
Equities opened flat in early Tuesday trading with Colombo's All Share index easing 0.04 percent, down 2.21 points to 6,026.28, while the S&P SL20 of more liquid stocks gained 0.15 percent, up 4.83 points to 3,135.11.
John Keells Holdings was 60 cents lower at 134 rupees and Commercial Bank was down 50 cents to 119 rupees.
LOLC gained 6.30 rupees to 94.90 rupees and Chevron Lubricants gained 2 rupees to 69 rupees. (COLOMBO, 18 September 2018)