ECONOMYNEXT – Sri Lanka’s forex market was mostly inactive Tuesday in early trade as the rupee was nominally bid from spot up to around 6 months forward at 199.90 to the US dollar with no offers, participants said, a day after a de facto non-credible peg was lowered to 202 from 190.90.
Unusual market phenomena which is of deep interest to students of central bank policy errors have been seen in Sri Lanka forex markets from 2020 as unprecedented volumes of money was printed under so-called ‘Modern Monetary Theory.
From around the second half of 2020, forward forex rates have been negative despite a record balance of payment deficit mostly coming from financial account outflows as interest rate differential between rupees and dollar turned negative.
On Monday small volumes were quoted at around the 202 spot fix given to the forex market after an earlier non-credible peg at 199.90 was devalued, market participants said.
On Tuesday banks were offering dollars at 202 for currency, for telegraphic transfers and for business transactions at the same fixed 202 rupees on their websites on Tuesday.
On Monday rupee was quoted at 198/202 to the US dollar in the spot market after a non-credible peg of 199.95 was lowered to 202 to the US dollar.
In the secondary market, bond yields remained dull but buying sentiment on short tenor maturities continued, dealers said.
Bonds maturing on 15.12.2022 was quoted at 7.60/65 per cent on Tuesday, up from 7.55/65 per cent on Monday.
Bonds maturing on 15.11.2023 was quoted flat at 6.25/30 per cent on Tuesday from Monday’s close.
Bonds maturing on 15.12.2024 was quoted at 6.60/70 per cent on Tuesday, down from 6.62/67 per cent on Monday’s close.
A bond maturing on 01.05.2025 was quoted at 7.00/10 per cent on Tuesday, steady from 7.00/20 per cent on Monday.
A bond maturing on 01.02.2026 was quoted at 7.35/40 per cent on Tuesday, up from 7.30/40 per cent on Monday.
A bond maturing on 15.10.2027 was quoted at 7.65/95 per cent, wider from 7.70/90 per cent on Monday.
A bond maturing on 01.09.2028 was quoted at 7.85/8.00 per cent on Tuesday. (Colombo/May11/2021)