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Saturday June 3rd, 2023

Sri Lanka rupee closes at 337/344 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 337/346 to the US dollar Thursday in the spot market after opening at 340/345 to the US dollar, dealers said.

The spot dollar was offered 399 to the US dollar Wednesday, with no bids.

There were some dollars provided for import bills, Thursday dealers said.

There were deals at around 340 to the US dollar in early trade but bids were shifted to around 337 later in the day.

Sri Lanka’s central bank, bought dollars heavily as the rupee appreciated following the lifting of a surrender rule, banks oversold and importers stayed in the sidelines and the rupee appreciated to around 320 to the US dollar.

The rupee weakened in thin trade as banks settled bills in house and tried to cover their short positions.

Some banks were now square, dealers said.
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In recent there is around 200 million dollar a month excess that the central bank was able to keep due to negative private credit.

Sri Lanka operated a peg with broadly consistent policy up to March 07, and shifted to a so-called flexible exchange rate or an ad hoc peg.

Up to the ad hoc peg, the central bank had bought dollars through a surrender rule, preventing appreciation and sold back for large import bills maintaining a consistent-policy-peg and only keeping the residual after giving back dollars to demand coming through domestic credit.

Flexible exchange rates, which are neither free floats nor hard pegs, are found in countries with high inflation, high interest rates and if the country has market access, sovereign default.

Several countries with depreciating flexible exchange rates or ad hoc pegs, were able to access capital markets in recent years due to exceptionally loose monetary policy run by the Fed, who have since defaulted or are close to default.

The experience in March shows that if the IMF sets high enough reserve target, the rupee can still depreciate, even if there is negative credit there is a small balance of payments surplus and the central bank has full control of the exchange rate, analysts warn.

In the past, the IMF came in when money and exchange policies came into conflict and forex shortages (balance of payments deficits) emerged.

But now IMF programs themselves contain an inflation target (domestic anchor), which allows inflationary policy, conflicting with a reserve target, triggering currency crises within the duration of a 4-year program. If they have market access they default. (Colombo/Mar15/2023)

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Sri Lanka to ramp up weekend fuel deliveries after petrol price cut

More deaths reported at Sri Lanka fuel queues

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Petroleum Corporation will be operating on the weekend to complete all fuel deliveries to end vehicle queues forming outside fuel stations after the price revision earlier in the week, Energy Minister Kanchana Wijesekera said.

“Instructions have been given to CPC and Ceylon Petroleum Storage Terminals to continue fuel deliveries on Saturday and Sunday this week to supply sufficient stocks to all fuel stations,” Minister Wijesekera said in a TWITTER.COM MESSAGE

“To reduce expenses on overtime, CPC and CPSTL have not been operating on Sundays and public holidays in the last 4 months,” Wijesekera said.

“Non-placement of orders by fuel stations from last Saturday, anticipating a price reduction, not maintaining minimum stocks, immediate increase in demand by consumers after the price revision, and quota increase have created shortages in the fuel stations.”

The Minister in April 2023 said all fuel stations would be required to maintain a minimum of 50 percent of stock tank capacity.

“I have asked CPC to review and suspend the license of fuel stations that had not maintained minimum stocks.” (Colombo/ June 02/ 2023)

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Sri Lanka bonds yield up at close, rupee at 291.75/292.50 against the US dollar

ECONOMYNEXT – Sri Lanka’s bonds closed steady on Friday, dealers said, following the central bank’s decision to cut its main policy rate by 250 basis points.

The Spot US dollar closed at 291.75/292.50 rupees, dealers said.

The rupee opened at 290.25/75 to the US dollar Thursday and closed at 292.50/295.50 to the US dollar.

A bond maturing on 15.09.2027 closed at 24.70/90 percent up from 24.50/90 percent a day earlier, dealers said.

A bond maturing on 15.05.2026 closed at 25.75/26.25 percent up from 25.00/26.00 percent a day earlier.

A bond maturing on 01.05.2025 closed at 27.00/30 percent, up from 26.30/27.00 per cent at last close.

A bond maturing on 01.07.2032 closed at 20.25/21.00 percent, up from 20.00/40 per cent at last close.
(Colombo/ June 02/2023)

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Sri Lanka’s shares edge up on positive macroeconomic sentiments

ECONOMYNEXT – Sri Lanka’s shares closed higher in trade on Friday, over positive macro-sentiments encouraging investors to redeem their interest towards buying, an analyst said.

The main All Share Price Index was up 0.72 percent or 62.19 points to 8,753.80,  while the most liquid index S&P SL20 was up 0.68 percent or 16.87 points to 2,487.29.

Sri Lanka’s inflation in the 12-months to May 2023 has eased to 25.2 percent from 35.3 percent a month earlier according to a revised Colombo Consumer Price Index calculated by the state statistics office.

Prior to the Monetary Policy investors were quite optimistic that inflation is to lower and interest rates will decrease and since exp, an analyst said.

Sri Lanka Central Bank is waiting for the government proposal on the domestic debt restructuring (DDR), the central bank governor Nandalal Weerasinghe said amid uncertainty over DDR and speculations over instability in the banking sector.

“On debt restructuring, the borrower is the ministry of finance’s treasury. Certainly we will announce what the strategy will be. We are waiting for a government proposal,” Weerasinghe said.

Sri Lanka’s investors are waiting on assurances to be made on debt restructuring and optimization, Central Bank Governor Nandalal Weerasinghe said, “It is up to the government to clear the uncertainty, because from our side we have done that part.”

The central bank cut the key policy rates by 250 basis points to spur a faltering economic growth as inflation was decelerating faster than it projected.

The speculation of DDR has hit the market and the risk premium has kept the market lending rates well above the central bank’s policy rates. The government has yet to present its plans on DDR.

Weerasinghe said the central bank has done its best to reduce the risk premium through bringing down the market lending rates while keeping the policy rates unchanged.

Sri Lanka’s President Ranil Wickremesinghe has discussed progress of International Monetary Fund program and debt restructuring during a visit of Deputy Managing Director Kenji Okamura, statement said.

“The discussion primarily focused on the progress of the IMF program between Sri Lanka and the IMF,” a statement from President’s office said.

“Attention was also paid to the on-going debt restructuring negotiations.”

However Officials from IMF have said Sri Lanka has to focus on expanding taxes.

“We discussed the importance of fiscal measures, in particular revenue measures, for a return to macroeconomic stability,” Deputy Managing Director Kenji Okamura said in a statement.

The finance ministry this week issued rules requiring everyone above 18 year of age to register to pay income tax.

“I was encouraged by the authorities’ commitment to negotiate a debt strategy in a timely and transparent manner.

The market generated a revenue of 738 million rupees, while the daily average was 1 billion rupees.

Top gainers in trade were Vallibel One, LOLC Finance and Browns Investment. (Colombo/June02/2023)

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