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Sri Lanka rupee closes stronger in one week forwards amid moral suasion

ECONOMYNEXT – Sri Lanka’s rupee closed around 195.50/196.00 to the US dollar in the one week forward market Thursday gaining from 196.60/198.00 levels a day earlier amid heavy moral suasion, dealers said.

There were no active spot market quotes.

Central bank data showed that the average buying rate for telegraphic transfers by commercial banks intra-day on April 23 was 191.7 rupees to the dollar on and the selling rate was 198.20.

A wide spread has emerged amid erratic trading.

Authorities have used heavy moral suasion on dealers, as the currency peg came under pressure from excess rupees injected by the central bank in the past. Net open positions of some banks have been cut, also in a repeat of past behaviour.

Sri Lanka goes through the same drama as rates are cut against the balance of payments and liquidity is injected triggering monetary instability.

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On Wednesday the central bank offered 10 billion rupees of excess liquidity through a reverse repo auction despite banks having 135 billon rupees of excess liquidity or over 10 percent of the monetary base to target a call money rates below the ceiling policy rate of 7.00 percent. There were no takers.

On Thursday for the first time in six market days there was no revere repo offer of more liquidity, but banks were still in excess by 116 billion rupees.

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The excess liquidity printed by the central bank is disproportionately high compared to diminished foreign exchange inflows and outflows seen in the country.

At the weekly treasuries action, bills were undersold by 8 billion rupees apparently to target rates down the yield cruve, raising concerns over more liquidity injections.

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Sri Lanka rupee at 196.50 to greenback in one week forwards amid excess liquidity

Sri Lanka Treasury bill auction yields flat

Sri Lanka exports are expected to fall over 30 percent and remittances may also fall.

In bond markets gilt yields eased amidst active trade, dealers said.

A bond maturing on 15.12.2021 closed at 7.50/65 percent on Thursday, down from 7.60/75 at Wednesday’s close.

A 2-year bond maturing on 01.10.2022 closed at 8.10/20 percent, unchanged from the previous day’s close.

A bond maturing on 01.09.2023 closed at 8.45/50 percent, easing from 8.55/60 percent.

A bond maturing on 15.09.2024 closed at 8.80/84 percent on Thursday falling from 8.85/8.88 percent at the previous day’s close.

A bond maturing on 15.10.2027 closed at 9.05/10 easing from 9.16/20 percent at Wednesday’s close.
(Colombo/ Apr23/2020)

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