Sri Lanka rupee ends firmer, gilt yields up
ECONOMYNEXT –Sri Lanka rupee ends stronger at 185.10/20 to the US dollar on Monday while bond yields closed wider after Moody’s downgraded the government rating to Caa1 (CCC+), dealers said.
The rupee closed at 185.25/40 levels on Monday.
Moody’s downgraded Sri Lanka’s credit by two notches to Caa1 (CCC+ equivalent), citing weak institutions and budgets on September 28.
“Governance considerations are an important driver of today’s decision to downgrade the rating,” the rating agency said.
“Moody’s assessment of Sri Lanka’s institutions and governance strength primarily relate to the slow pace of reform implementation, as well as political risks, which impair the effectiveness of fiscal and economic policymaking.
“Moreover, Sri Lanka’s fragile and deteriorating fiscal position will continue to impede fiscal policy effectiveness over the medium term.”
After the rating agency’s announcement, most tenors which was around 5 basis points widened to over 40 basis points reflecting uncertainty, while yields were also higher.
A 2-year bond maturing on 15.12.2022 closed at 5.75/90 up from 5.63/70 per cent on Monday.
A bond maturing on 15.01.2023 closed at 5.80/95 per cent up from 5.65/75 per cent.
A bond maturing on 15.09.2024 closed at 6.42/50 per cent up from 6.12/18 per cent.
A bond maturing on 01.05.2025 closed at 6.68/78 per cent up from 6.55/60 per cent.
A bond maturing on 01.02.2026 closed at 6.87/97 up from 6.65/75 per cent.
A bond maturing on 15.08.2027 closed at 7.05/15 per cent up from 7.00/10 per cent.
A bond maturing on 01.07.2028 closed at 7.20/7.40 up from 7.10/25 per cent on Monday.
A 10-year bond maturing on 15.05.2030 closed at 7.40/60 per cent up from 7.38/48 per cent on Monday.
Sri Lanka’s Finance Ministry said the downgrade was unwarranted as the domestic economy was recovering with exports and remittances also improving.
“This downgrade and the report fail to do justice to the ground reality of the ongoing rapid economic recovery backed by vastly improved business confidence arising from the return of political and policy stability after a lapse of five years,” the Finance Ministry said.
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