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Wednesday February 28th, 2024

Sri Lanka parliament to debate draft central bank law on May 11

ECONOMYNEXT – Sri Lanka will take up for debate a bill for a new central bank law on May 11 and a welfare benefit bill on May 12, the statement from the parliament said.

The controversial new central bank is expected to legalize output gap targeting (printing money for growth) as a sub objective.

The banks will also get a legal mandate to simultaneously operate money and exchange polices, (so-called dual anchor or impossible trinity regime), in the course of operating flexible inflation targeting regime.

Provisional advances – another form of delivering liquidity shocks – will be done for interest instead of free as of now.

Sri Lanka has had monetary instability from shortly after the central bank was created in 1950 with simultaneous money and exchange policies but the country had managed to avoid external sovereign default until 2022.

Flexible inflation targeting with output gap targeting with aggressive open market operations started around seven years ago after the IMF gave technical assistance to calculate a so-called potential output.

The new monetary law is a structural benchmark in the IMF program.

On May 12, a welfare benefit law will be taken up. (Colombo/ May04/2023)

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Sri Lanka rupee closes at 310.00/15 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 310.00/15 to the US dollar Wednesday, from 310.25/50 on Tuesday, dealers said.

Bond yields were broadly steady.

A bond maturing on 01.02.2026 closed at 10.60/80 percent from 10.60/75 percent.

A bond maturing on 15.09.2027 closed at 11.90/12.00 percent up from 11.80/95 percent.

A bond maturing on 15.03.2028 closed stable at 12.00/15 percent.

A bond maturing on 15.07.2029 closed at 12.20/50 percent from 12.25/50 percent.

A bond maturing on 15.05.2030 closed stable at 12.25/40 percent.

A bond maturing on 15.05.2031 closed at 12.55/75 percent down from 12.60/80 percent.

A bond maturing on 01.07.2032 closed at 12.50/90 percent down from 12.55/13.00 percent. (Colombo/Feb28/2024)

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Sri Lanka Treasuries yields edge up after steep fall

ECONOMYNEXT – Sri Lanka’s Treasury bill yields edged up across maturities at Wednesday’s auction with the 3-month yield up 09 basis points to 9.87 percent, data from state debt office showed.

The debt office sold 27.5 billion rupees of 3-month bills after offering 35 billion rupees.

The 6-month yield rose 09 basis points to 9.95 percent with 37.23 billion rupees of bills sold, after offering 47.5 billion rupees.

The 12-month yield went up 03 bis points to 10.05 percent, with 39.5 billion rupees of bills sold and 40 billion rupees offered.

Sri Lanka’s Treasuries yield have come down sharply in recent weeks.

The trend was partly helped by some banks which were earlier not buying into bills, starting to buy them.

Deposit in the central banks overnight window (private sector sterilization) has come down from around 200 billion to around 130 billion rupees in recent weeks.

Sri Lanka’s central bank in the past have triggered currency crises and eventual high corrective rates by not allowing Treasury bill yields to move when up private credit picks up and buying them into the balance sheet.

The resulting forex problems are then blamed on budget deficits (politicians) and current account deficits (mainly imports of the public usually petroleum, gold or cars).

The central bank can still buy Treasury bills outright from banks, term or overnight to inject money, alter rupee reserves of banks and encourage them to overtrade and trigger forex shortages, confidence shocks, capital flight and a second default, critics say.

The central bank recently lifted counterparty limits of standing facilities, which are given at the policy rate without a penalty unlike in countries with greater monetary stability.

In recent weeks the central bank has oversold bills outright and injected money long term and short term, though so far overall net injections have been deflationary. (Colombo/Feb28/2024)

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Sri Lanka stocks close up, retail activity coming in

ECONOMYNEXT – The Colombo Stock Exchange closed up on Wednesday, data on its site showed.

The broader All Share Index closed up 55.29 points, or 0.52 percent at 10,678; while the S&P SL20 Index closed up at 3,056 points, up 0.06 percent, or 1.73 points.

Turnover was at 1.2 billion.

Market participants said that “retail activity is also picking up.”

Hemas Holdings Plc saw large volumes being traded, contributing 90 million to the day’s turnover. The share closed up at 75.00.

Kapruka Holdings Plc announced that it had purchased 197,015 ordinary voting shares of its subsidiary Kapruka e-Commerce (Pvt) Ltd for 13.2 million rupees at 67 a share. The proceeds will be used by Kapruka e-Commerce “to fulfill the IPO objective of launching Kapruka Partner Central, the company said. The share closed down at 6.80.

E B Creasy and Company Plc announced a disposal of investment in its subsidiary, Lanka Special Steels Limited (LSSL) in accordance with the restructuring process of the E B Creasy Group. The Board resolved “to divest its 100% stake represented by 2,138,657 shares in its subsidiary Lanka Special Steels Limited (LSSL), to subsidiary company Laxapana Batteries PLC (Laxapana) for a total consideration of Rs694mn which will be settled in installments. Shares of E B Creasy and Company Plc closed up at 22.00.

Sectors that attracted investor interest were Capital Goods (376mn), Food, Beverage and Tobacco (181mn), and Banks (166mn).

Positive contributors to the indices in the day included Hayleys Plc (up at 82.00), Chevron Lubricants Lanka Plc (up at 104.00), Vallibel One Plc (43.30), and Cargills (Ceylon) Plc (up at 349.75) whose Chairman Ranjith Paige donated 3 million rupees to the ‘Children of Gaza Fund’ earlier today. (Colombo/Feb28/2024).

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