Sri Lanka rupee ends firmer, gilt yields steady ahead of the monetary policy review

ECONOMYNEXT- Sri Lanka’s rupee closed stronger at 181.45/55 to the US dollar in the spot market on Wednesday, while bond yields were steady, dealers and brokers said.

The rupee closed at 181.55/60 to the greenback on Tuesday.

Liquidity in the overnight money market was 36.18 billion rupees up from 33.52 billion rupees.

Central Bank mopped up 11.68 billion rupees at 7.51 percent in an overnight repo auction.

Banks deposited 25.72 billion rupees through Central Banks excess liquidity window.

Sri Lanka is having its first monetary policy review tomorrow.

Dealers are expecting the policy rates to remain unchanged since the market has not realized the fiscal and monetary policy changes fully yet.

First Capital Research said that considering the recent major Fiscal and Monetary policy changes, the current accommodative monetary policy stance is appropriate, and that there is ample space for market lending rates to reduce without further adjustment in policy rates.

In the last policy meeting held in December 2019, Central Bank of Sri Lanka maintained its accommodative monetary policy stance at current levels immediately following the tax revisions with the belief that it would support higher economic growth in the short term.

“Considering the recently provided tax revisions and other benefits, we were of the view that continuation of policy rates were appropriate at that economic juncture. However, we also assigned a 50 percent probability for a rate cut in December 2019 considering the urgency to improve the lending and the economic growth,” said First Capital Research in its

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Sri Lanka’s debt office is also offering 15 billion treasury bonds at 9.85 percent maturing on 15.09.2024 and 17.5 billion rupees at 10.30 percent maturing on 15.10.27.

Dealers are expecting tomorrow’s bond auction to remain in par with the market rates.

In the secondary bond market, yields were stable in moderate trading while activity centered on 2024 maturities today, dealers said.

A bond maturing on 15.12.2021 closed flat at 8.65/85 percent on Wednesday from its last closing.

A bond maturing on 01.09.2023 closed at 9.18/25 percent today, easing from 9.20/25 percent at Tuesday’s close.

A bond maturing on 15.09.2024 closed at 9.45/50 percent on Wednesday, gaining from 9.40/44 percent on Tuesday’s close.

A bond maturing on 15.10.2027 closed at 9.60/70 percent today, gaining from 9.55/65 at yesterday’s close.

A bond maturing on 15.05.2030 closed at 9.75/90 percent up on Wednesday, after closing at 9.75/85 percent on Tuesday.

A bond maturing on 15.09.2034 closed at 9.85/10.00 percent, stable from its previous close. (Colombo/Jan29/2020)

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