ECONOMYNEXT – Sri Lanka’s forex markets remained largely inactive, market participants said as banks found it increasingly difficult to accommodate requests for letter of credit and isolated trades were seen in swap markets.
Sri Lanka forex dealers have been barred from quoting above 200 to the US dollar.
Sri Lanka’s rupee is now in a non-credible peg at 200 to the US dollar with over 100 billion rupees (about 500 million US dollars) in excess liquidity pressuring the peg via potential new credit.
Last week another 22 billion rupees (about 100 million US dollars) were printed to keep Treasury bill yields below 5.21 per cent, which is functioning as a de facto ceiling policy rate.
In the swap market, one year forwards are quoted at discounts with domestic dollar yields overtaking the rupee rates kept down by money printing.
The year was quoted this week at 1700/2200 levels or a discount of around 17 rupees.
Banks are mandated to sell to importers around 200 to the US dollar.
Though the peg is now enforced at 200 to the US dollar with multiple controls, there is no monetary policy to back it analysts say as long liquidity is injected.
In the secondary market, bond yields remained steady, dealers said.
Bonds maturing on 15/12/2022 closed at 5.68/75 per cent on Tuesday, down from 5.70/75 per cent on Monday.
Bonds maturing on 15.11.2023 closed at 6.22/27 per cent on Tuesday, steady from 6.23/26 per cent on Monday.
Bonds maturing on 01.12.2024 closed at 6.67/72 per cent on Tuesday,
up from 6.65/72 per cent on Monday.
A bond maturing on 01.05.2025 closed flat at 6.90/7.00 per cent on Tuesday, from Monday’s close.
A bond maturing on 15.01.2026 closed flat at 7.28/35 per cent on Tuesday, from 7.30/35 per cent at Monday’s close.
A bond maturing on 15.08.2027 closed flat at 7.50/70 per cent on Tuesday from Monday.