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Saturday March 2nd, 2024

Sri Lanka liquidity down amid reserve outflows, overnight rates edge up

ECONOMYNEXT – The aggregate overnight balance of Sri Lanka’s banking system fell to 0.03 billion rupee from 53.5 billion rupees two days earlier amid reserve outflows on two consecutive days with overnight rates also edging up to the highest level since July 2020, official data shows.

Overnight call rates went up to 5.15 percent, the highest July 08, 2020. On July 09 Sri Lanka’s policy corridor was cut by 100 basis points to 5.50 percent and 4.50 percent.

The rates was part of series of rate cuts, reserve ratio cuts and liquidity injections through outright monetization mimicking what was claimed to be ‘modern monetary theory’.

However rates are still below the 5.50 percent ceiling rate at which liquidity is supposed to be injected.

The central bank has been injecting hundreds of billions of rupees of liquidity through failed Treasury bills auctions to drive credit and trigger forex shortages.

On Friday the central bank’s Treasury bill stock went up to 922 billion rupees from 911 billion rupees following a partially failed bill auction at a ceiling rate of 5.26 percent.

However the reserve outflows sucked up the liquidity, leaving the overnight balance only 0.03 billion rupees plus.

The liquidity injections were made despite two currency crises and growth shocks in 5-years from liquidity injections to target call money rates and an output gap (a milder version of MMT) sending the rupee careening from 131 to 182 to the US dollar and import restrictions.

The liquidity injections in 2020 blew the balance of payments wide open, triggering a 2.3 billion US dollar BOP deficit. Up to May 2021 the BOP deficit has topped a billion US dollars.

Critics have said Sri Lanka’s economic woes started after a Latin America style central bank was set up in 1950 under the tutelage of a Federal Reserve ‘money doctor’.

The country hit the first BOP crisis as the Fed triggered commodity bubble purchasing ‘Liberty bonds’ injecting liquidity into the US banking system. Mercantilists mis-named in the Korean war boom, though Federal Reserve minutes show otherwise.

The Liberty Bonds bubbles also led to what is now called Fed – Treasury accord. (Colombo/July22/2021)

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Sri Lanka eyes SOE law by May 2024 for better governance

ECONOMYNEXT – Sri Lanka is planning to pass a Public Commercial Business (PCB) Act improve governance of state-owned enterprise by May 2024 as part of an anti-corruption efforts following an International Monetary Fund assessment.

Sri Lanka’s state enterprises have been used by politicians to give ‘jobs of the boys’, appropriate vehicles for personal use, fill board of directors and key positions with henchmen and relatives, according to critics.

Meanwhile macro-economists working for the state also used them to give off-budget subsides or made energy utilities in particular borrow through supplier’s credits and state banks after forex shortages are triggered through inflationary rate cuts.

The government has taken billons of dollars of loans given to Ceylon Petroleum Corporation from state banks.

There have also been high profile procurement scandals connected to SOEs.

An SOE Reform Policy was approved by Sri Lanka’s cabinet of ministers in May 2023.

The Public Commercial Business (PCB) Act has now been drafted.

A holding company to own the SOEs will be incorporated and an Advisory Committee and Board of Directors will be appointed after the PCB law is approved, the statement said. (Colombo/Mar01/2024)

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Sri Lanka rupee closes at 308.80/90 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 308.80/90 to the US dollar Friday, from 309.50/70 on Thursday, dealers said.

Bond yields were broadly steady.

A bond maturing on 01.02.2026 closed at 10.65/75 percent up from 10.50/70 percent.

A bond maturing on 15.09.2027 closed at 11.90/12.05 percent from 11.90/12.10 percent.

A bond maturing on 01.07.2028 closed at 12.15/35 percent down from 12.20/25 percent.

A bond maturing on 15.07.2029 closed at 12.25/40 percent up from 12.30/45 percent.

A bond maturing on 15.05.2030 closed at 12.30/45 percent down from 12.35/50 percent.

A bond maturing on 01.07.2032 closed at 12.50/13.00 percent from 12.55/13.00 percent. (Colombo/Mar1/2024)

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Sri Lanka stocks close up 0.37-pct, Expo to de-list

ECONOMYNEXT – The Colombo Stock Exchange closed up 0.37 percent on Friday, and SG Holdings, the parent company of Expolanka Holdings Plc, said it was taking the company private.

Expolanka is the largest listed company on the Colombo Stock Exchange.

“Expolanka Holdings PLC has, at the Board Meeting held on 1st March 2024, considered a request from its principal shareholder and resolved to initiate the de-listing of the Company’s shares from the Official List of the Colombo Stock Exchange subject to obtaining necessary shareholder approval and regulatory approvals,” the company said in a stock exchange filing.

As per arrangements with SG Holdings Global Pte Ltd, the Company’s majority shareholder, it will purchase its shares from shareholders who may wish to divest their shareholding in the Company at a purchase price of Rs 185.00 per share. The share closed up at 150.50.

The broader All Share Index closed up 0.37 percent, or 39.47 points, at 10,691; while the S&P SL20 Index closed down 0.64 percent, or 19.59 points, at 3,037.

Turnover stayed above the 1 billion mark for the sixth consecutive day, registering 1.4 billion.

Crossings in Melstarcorp Plc (135mn) up at 89.50, Hatton National Bank Plc (64mn) up at 158.00, Hemas Holdings Plc (53mn) up at 75.00 and Central Finance Company Plc (26mn) up at 103.50, added significantly to the day’s turnover.

“The upward trend is continuing, with more retail buying also coming in, the number of trades was more than 10,000 today,” a market participant said. “Investors are looking for undervalued stocks and buying in quantities.” (Colombo/Mar1/2024).

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