Sri Lanka rupee ends stronger on tighter bank NOPs, stocks down 0.13-pct

ECONOMYNEXT – The Sri Lanka rupee gained sharply against the US dollar Thursday after the Central Bank tightened limits on overnight dollar holdings of commercial banks, and stocks fell 0.13 percent on low volumes amidst foreign selling in Ceylon Cold Stores, brokers and dealers said.

The Sri Lanka rupee gained sharply to close at 161.40/60 rupees against the US dollar in the spot market, recovering from an all-time low of 162.35/50 rupees against the greenback earlier in the day on importer demand.

The currency’s sharp appreciation came after the Central Bank on Thursday slashed the amount of US dollars commercial banks can hold overnight for trading, called Net Open Positions (NOPs), in a bid to contain currency pressure.

During the day importers had bought dollars at an intraday high of 162.50 rupees. After the NOPs were slashed, importers bought dollars for as low as 161.30 rupees.

In recent weeks the rupee came under pressure after excess liquidity amounting to tens of billions of rupees were generated from a currency swap where the Treasury sold US dollars to the Central Bank.

Excess overnight liquidity was around 10 billion rupees on 25 July when the US dollar traded at 159.60/65 rupees and has gradually increased peaking at 58.42 billion rupees on 8 August.

Analysts said the dollars should have been sold in the market instead; or the Central Bank should have sterilized the excess liquidity no sooner it bought the dollars.

Instead, excess liquidity was allowed to remain and pressure the currency via credit to importers.

Overnight excess liquidity increased by 3.83 billion on Thursday to 22.76 billion rupees. During the day, the Central Bank had absorbed excess liquidity of 17.61 billion rupees via repo auction and liquid banks parked a further 5.15 billion rupees in the Central Bank overnight deposit window.

Gilt yield spreads narrowed in the secondary bond market amidst low trading volumes, dealers said.

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A five-year bond maturing in 2023 closed at 9.95/10.00 percent in two-way quotes, narrowing from the previous day’s closing of 9.93/10.01 percent.

A ten-year bond maturing in 2028 closed at 10.24/30 percent, compared to the previous day’s 10.20/30 percent.

In equities, Colombo’s benchmark All Share index fell 0.13 percent, down 7.97 points to 6,112.32, with 43 stocks gaining during the day against 68 that declined.

The S&P SL20 index of more liquid stocks closed 0.06 percent lower, down 1.99 points to 3,221.90.

Ceylon Cold Stores (down 31.90 rupees to 850.10 rupees), Softlogic Holdings (down 90 cents to 20.80 rupees) and Distilleries (down 20 cents to 19.20 rupees) weighed down the benchmark index.

Dialog closed 10 cents lower at 12.30 rupees, and Sampath Bank was down 2.20 rupees to 276.10 rupees.

John Keells Holdings has gained 2.40 rupees to 139.80 rupees.

Market turnover was 119.5 million rupees, down from a turnover of 365.5 million rupees the previous day.

Net foreign selling was 10.1 million rupees, down from selling of 46.9 million rupees the previous day.

Foreign selling in Ceylon Cold Stores was 13 million rupees, according to Asia Securities.

No crossings, or off-market negotiated deals, were reported. (COLOMBO, 06 September 2018)

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