ECONOMYNEXT – Sri Lanka has raised a ceiling yield on 12-month Treasury bills, which serves as a de facto policy rate when real auction bids above the rate are replaced with printed money, by 08 basis to 6.05 percent, data shows, though bond markets remained frozen.
The 12-month rate is now 05 basis points above the rate at which overnight money is printed. Last week the ceiling rate was 5.97 percent, below the overnight 6.0 percent rate.
About 40 billion rupees was printed last week as bids above the ceiling rate were rejected. The money however will be absorbed by a liquidity short created by a statutory reserve ratio hike, without putting immediate pressure on the rupee.
Sri Lanka’s bond markets have been inactive and large frozen following the rate hike, though longer tenors were progressively becoming less liquid before that.
“Bond markets have come to a standstill,” a market participant said. “No one is quoting.”
On Friday and solitary bond maturing on 01.12.2024 was quoted around 8.00/25 percent around the same levels.
Sri Lanka printed 127 billion rupees of new money through the overnight 6.0 percent window September 01 to sterilized a statutory reserve ratio hike on top of earlier injections made to sterilize reserve outflows and debt repayments.
Sri Lanka’s rupee has stabilized around 230 to the US dollar in recent days, which is a psychological level, though sporadic deals have taken place a little higher when banks bought large chunks of dollars from exporters, and VOSTRO clients, market participants said.
Sri Lanka has lost remittances to the informal market due to banks offering low rates close to 200 to the US dollar when the undiyal market went above 230 to the US dollar.
There is no interbank spot market to establish a uniform system wide price and individual banks, importer and exporters are jostling to get and sell dollars in an over-the-counter market.
Foreign banks are quoting rates of 222/230 for telegraphic transfers. Large local banks are quoting 222/226 for telegraphic transfers up to 1,000 US dollars.
Sri Lanka raised the overnight money printing rate to 6.0 percent from 5.5 percent on August 19, and has kept lower levels of excess liquidity in money markets from around August 13.
Overnight call money was quoted around 5.90/6.00 percent and gilt backed repos around 5.80/5.90 percent, dealers said. (Colombo/Sept06/2021)