ECONOMYNEXT – Sri Lanka rupee was quoted around 222 to the US dollar for large importers following sporadic interventions around 219.50, while bond markets were froze in longer tenors, dealers said.
Sri Lanka’s central bank had effectively suspended convertibility for current transactions for its excess rupee notes created through failed Treasuries auctions and the overnight window, leading to a gradual weakening of the currency.
This week there were some official dollar sales at rates varying from 215 to 219.50 to the US dollars in the spot market, dealers said.
Some banks which bought dollars at high rates were selling to importers at a slightly lower average cost, market participants said.
Bond markets were largely frozen with only two shorter maturities being actively quoted, dealers said.
A bond maturing on 15.11.23 was quoted at 6.95/7.10 percent Thursday down from 7.00/10 per cent Wednesday.
A bond maturing on 01.12.24 closed at 8.00/8.08 per cent Thursday down from 8.00/8.10 percent, a day earlier.
Sri Lanka has forex shortages and an ongoing balance of payments deficit due to liquidity injected from mainly from Treasuries auctions failed due to price ceilings.
Analysts have urged authorities to lift price ceiling so that the government’s solvency would be restored in the domestic debt market which will also end forex shortages and allow it to buy a part of the dollars required for external debt payments.
For an upcoming 35 billion rupees Treasury bond auction, the debt office has set ceilings.
For 15.09.2023 bonds a ceiling rate of 6.75 percent has been set, which around than the 6.95 percent a slightly longer maturity of 15.11.23 bonds is trading at.
A ceiling rate of 8.55 percent has been set for 15.10.25 bonds.
There are no 2025 bonds trading at the moment, due to lack of interest in longer tenors.
In a July 29 auction which failed with over 50 billion rupees being printed, a 6.90 percent ceiling was set for 2024 bonds and 7.50 for 2026 bonds. Policy rates were raised 50 basis points last week. (Colombo/Aug26/2021)