Sri Lanka rupee at 195.30/195.70 in one-weeks amid intervention

ECONOMYNEXT – Sri Lanka’s rupee was quoted around 195.20/195.70 in the one-week forward market in late trade on Friday after intervention at different levels amid continued excess liquidity and import controls, dealers said while stocks soared.

There were intra-day interventions seen around 193.50 to 194.00 levels in spot, market participants said.

There is rarely any trading in spot except in interventions. Some liquidity develops in spot-next to one weeks’ from time to time.

With record volumes of money printed under Modern Monetary Theory, dollar yields have exceeded rupee yields, inverting forward premiums.

Exporters have stopped selling forward, depriving dollar liquidity to the market.

Some banks have been borrowing at high rates in the market, triggering a forex auction in at least one instance, market participants said.

The central bank had already ordered banks not to buy Sri Lanka sovereign bonds, which are being sold at high yields.

However in times of stress, Sri Lanka forces state-run Ceylon Petroleum Corporation to borrow dollars, while keeping rupee deposits, worsening pressure on the currency and making the rupee run large losses, analysts have said.

The sovereign downgrade to ‘CCC’ has also made it more expensive to confirm import letters of credit with a foreign bank with many overseas banks running out of limits for Sri Lanka, bankers said.

Demand for LCs to be confirmed by third banks from shippers abroad have also gone up, they say.

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In the past the fee to confirm an LC was around 0.3 to 0.75 percent. But it has since gone up to 1.5 to 2.5 percent, bankers say.

In bond markets gilt yields were steady, dealers said.

A 2-year bond maturing on 15.12.2022 closed at 5.35/42 per cent on Friday, up from 5.30/35 per cent at Wednesday’s end.

A bond maturing on 15.01.2023 closed at 5.40/45 per cent on Friday, up from 5.35/38 per cent at the last closing.

A bond maturing on 15.09.2024 closed at 6.22/28 per cent, up from 6.17/20 per cent.

A bond maturing on 01.05.2025 closed at 6.32/42 per cent on Friday, down from 6.30/40 per cent at Wednesday’s end.

A bond maturing on 01.02.2026 closed at 6.53/60 per cent on Friday, up from 6.50/57 per cent at the last closing.

A bond maturing on 15.08.2027 closed at 7.05/13 per cent, up from 7.05/10 per cent at the last closing.

A bond maturing on 01.07.2028 closed flat at 7.20/40 per cent.

A 10-year bond maturing on 15.05.2030 closed at 7.60/75 per cent on Friday, up from 7.50/70 per cent.

Meanwhile stocks surged 1.9 percent, with turnover rising to 12 billion rupees. (Colombo/Jan15/2021)

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