An Echelon Media Company
Thursday December 9th, 2021
Bonds & Forex

Sri Lanka rupee dollar swap discounts narrow, short tenors positive

ECONOMYNEXT – Sri Lanka’s one year swap discounts have narrowed further this week, with 12-month swap discount falling to -300/-500 while parallel markets have widened, market participants said.

There were some isolated deals in the spot market to help small banks, dealers said.

Exporters are being paid as much as 207 to the US dollar in some cases, by some banks, which are being sold to urgent customers and capital outflows, according to market participants.

In general import customers are expected to be given dollars at 203 to the US dollar.

Rupee dollar swap rates as follows.

Spot/12-month -300/-500

Spot/6 -months -300/-200

Spot/3- months -30/+30

Spot/2 – monts 0/50

Spot/1 – month 0/30

Swap discounts have narrowed since demand from a state banks reduced and banks also got dollars from maturing sovereign and Sri Lanka Development Bonds.

Dollar funding in Sri Lanka’s interbank market had tightened after a credit downgrade to CAA+ in late 2020 and money printing.

Some banks are hard pressed to service clients who have goods stuck at port bought on DA/DP terms.

Demurage and delays add up to around 50,000 rupees a day for containers stuck at port, which make is more cost effective to somehow clear them.

However some banks are still giving dollars at around 203 for importers and buying from exporters also at the same rate.

With parallel kerb markets going up, there is more incentive for overseas workers to remit money via havala and undiyal systems, banking sources said.

Sri Lanka has denied dollar convertibility to printed rupees in the trade account, leading to rationing of dollars to importers by banks. Printed rupees are however are redeemed through unsterilized interventions for debt repayments.

Sri Lanka has been steadily losing monetary reserves since August 2019 when money printing started for ‘output gap targeting’.

In 2020 money had been printed mostly to target gilt yields, turning legacy debt to reserve money in some cases, to finance state spending, to set up a fuel stabilization account and also to re-finance overdue government payments through a credit scheme.

However some of the printed money was also absorbed by a sharp expansion in demand for currency notes among the public (also known as an internal drain) which causes no harm to the economy.

Most of the injected money has left the country as foreign reserve losses or an ‘external drain’.

Leave a Comment

Your email address will not be published. Required fields are marked *

Your email address will not be published. Required fields are marked *

Comments

Leave a Comment

Your email address will not be published. Required fields are marked *

Your email address will not be published. Required fields are marked *