Sri Lank rupee opens weaker, stocks down 0.16-pct

ECONOMYNEXT – The Sri Lanka rupee opened weaker against the US dollar on Monday and stocks fell 0.16 percent in early trading in Distilleries and Sri Lanka Telecom, brokers and dealers said.

The rupee weakened to 162.20/30 rupees against the US dollar in early spot market trading Monday on importer demand, dealers said.

On Thursday the Central Bank tightened limits on overnight dollar holdings of commercial banks, called Net Open Positions (NOPs) to contain the recent pressure on the currency.

However, slashing dollar positions reduces the depth of the market and worsens volatility, requiring more interventions by a central bank to maintain stability.

The rupee had a volatile week, reaching a low of 162.32/50 rupees against the greenback and then strengthening to 160.80 rupees against the US dollar on Thursday, only to close Friday at 162.00/20 rupees.

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.

Overnight excess liquidity fell by 6.84 billion rupees on Friday to 15.92 billion rupees.





Gilt-yields opened steady on Monday in the secondary market for government securities.

A five-year bond maturing in 2023 opened at 9.98/10.03 percent, narrowing from Friday’s closing of 9.96/10.04 percent.

A ten-year bond maturing in 2028 was at 10.25/35 percent, unchanged from Friday’s closing.

In equities, Colombo’s All Share index opened 0.16 percent lower, down 9.73 points to 6,108.16, and the S&P SL20 of more liquid stocks gained 0.32 percent in early trading, up 10.24 points to 3,227.06.

Distilleries Company was down 80 cents to 18.30 rupees and Melstacorp was up 50 cents to 51 rupees.

Sri Lanka Telecom was trading 60 cents lower at 22 rupees and Sunshine Holdings was down 4 rupees to 51 rupees. (COLOMBO, 10 September 2018)

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