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Thursday April 18th, 2024

Sri Lanka resumes repo auctions in minor tightening of policy

ECONOMYNEXT – Sri Lanka took out 10 billion rupees from the overnight interbank market through a repo action at 5.77 percent, slightly above the 5.50 percent repo window rate, official data showed.

The central bank resumed repo auctions to take out excess liquidity from August 24, after halting them in March 2020 as part of pursuing so-called modern monetary theory.

There were no takers on August 24. On August 25, 6.95 percent was taken out at 5.74 percent.

Last week the central bank also raised policy rates by 50 basis points to 6.0 percent, but then placed a ceiling rate of 5.93 percent on 12-month Treasuries, potentially undoing any benefit from the rate hike.

The central bank is expected to do some forex swaps with interbank participants, which inject some liquidity.

Unless the liquidity is taken out however the rupee would come under further pressure, or the dollars would be lost in interventions, analysts say.

The resumption of repo auctions is a further tightening of policy, but is a second best method to selling down Treasury bills outright and permanently sterilizing the rupees to lock the dollars in forex reserves.

Ceiling rates on bond auctions, through which critics say large volumes of liquidity was injected brining Sri Lanka close to default over the past year are still in operation.

For a forthcoming bond auction, the ceiling rates have been raised from a week earlier, closer to levels in the secondary market now.

The ceiling rates which act as a de facto policy rate to inject liquidity, is the culmination of policy deterioration that started during the last administration, involving so-called ‘Stage III’ auctions and price controls on deposit and lending rates, critics say

On September 01, the central bank is raising statutory reserve ratios to 4.0 percent from 2.0 percent, which may take out in excess of 125 billion rupees from the market. (Colombo/Aug26/2021)

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Sri Lanka’s discussions with bondholders constructive: State finance minister

ECONOMYNEXT – Sri Lankan authorities continue to engage all debt restructuring negotiations in good faith, within principles of equitable treatment among creditors, and with maximum transparency within the norms of such negotiations, State Minister of Finance, Shehan Semasinghe has said.

“It is standard practice, when a representative group of bondholders is formed, to entertain confidential discussions with such group and its appointed advisors. In the case of Sri Lanka, the Ad Hoc Group of Bondholders represents holders controlling more than 50% of the bonds, which make them a privileged interlocutor for Sri Lanka,” Semasinghe said on X (twitter).

“It is well understood that given the price sensitive nature of the negotiations, and according to market regulations, discussions with the Group and its advisors are to be conducted under non-disclosure agreements. This evidently restricts the ability of the Government to unilaterally report about the substance of the discussions.

“The cleansing statement, which was issued on the 16th of April, at the conclusion of this first round of confidential discussions with members of the Group, aims at informing the Sri Lankan people, market participants and other stakeholders to this debt restructuring exercise, about the progress in negotiations. It provides the highest possible level of transparency within the internationally accepted practices in such circumstances.

“As informed in this statement, confidential discussions held in recent weeks with bondholders’ representatives proved constructive, building on the restructuring proposals presented by both parties. During the talks both sides successfully bridged a number of technical issues enabling important progress to be made. Sri Lanka articulated key remaining concerns that need to be addressed in a satisfactory manner.

“The next steps would entail further consultation with the IMF staff regarding assessments of the compatibility of the latest proposals with program parameters. Following these consultations, we hope to continue discussions with the bondholders with a view to reaching common ground ahead of the IMF board consideration of the second review of Sri Lanka’s EFF program.”

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Sri Lanka rupee weakens at 301.00/302.05 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 301.00/302.05 to the US dollar in the spot forex market on Tuesday, from 299.00/10 on Tuesday, dealers said. Bond yields were broadly steady.

A bond maturing on 15.12.2026 closed stable at 11.30/35 percent.

A bond maturing on 15.09.2027 closed at 11.90/12.05 percent up from 11.95/12.00 percent.

A bond maturing on 15.12.2028 closed at 12.10/20 percent down from 12.10/15 percent.

A bond maturing on 15.07.2029 closed at 12.25/40 percent.

A bond maturing on 15.03.2031 closed at 12.30/50 percent. (Colombo/Apr17/2024)

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Sri Lanka Treasury Bill yields down across maturities

ECONOMYNEXT – Sri Lanka’s Treasuries yields were down across maturities at Wednesday’s auction with the 3-month yield moving down 7 basis points to 10.03 percent, data from the state debt office showed.

The debt office sold all 30 billion rupees of 3-month bills offered.

The 6-month yield fell 5 basis points to 10.22 percent, with 25 billion rupees of bills offered and 29.98 billion rupees sold.

The 12-month yield dropped 4 basis points to 10.23 percent with 18.01 billion rupees of bills sold after offering 23 billion rupees. (Colombo/Apr17/2024)

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