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Sri Lanka rupee extends fall, shorter tenor bond yields up

ECONOMYNEXT – Sri Lanka’s rupee fell for the second straight day to 145.80/146.00 to the US dollars in forex markets, Thursday, prompting sales by a state bank that usually acts for the monetary authority dealers said, amid foreign bond sales.

The spot rupee fell from 145.35/45 to the US dollar to close at 145.90/90 Wednesday.

Sri Lanka’s money markets which had excess liquidity from August 29, promoting credit and imports went short on 09th September, indicating a large dollar outflow.  Since then markets have been kept short by the central bank which injected overnight cash and the reverse repo rate auction has moved up to 8.49 percent, one basis point below the standing window rate.

When banks are short, they try to raise deposits to clear the short and stop giving credit with printed money, helping stabilize the currency.

There have also been spate of luxury car imports by parliamentarians who get tax free permits, in recent days, increasing the demand for dollars, persons familiar with the matter said.

A state bank was seen selling dollars at around 145.85 levels Thursday, dealers said.

Dealers said foreign bond holders have also sold after bonds yields fell sharply in recent days.

On Thursday, shorter tenor bonds of up to 7-year were quoted about 10 to 15 basis points higher than last Friday though longer tenor bonds were unchanged, gilt dealers said.

A selection of bond yields at mid-day Thursday are given below.

2-year bonds maturing on 15.10.2018 were quoted at 10.80/95 up from last Friday’s 10.75/90
3-yaer bonds maturing on 15.09.2019 were quoted at 11.00/10 up from 10.85/11.00
5-year bonds maturing on 01.03.2021 were quoted at 11.17/23 up from 10.95/11.10
6-year bonds maturing on 01.10.2022 were quoted at 11.38/45 up from 11.25/33
7-year bonds maturing on 01.09.2023 were quoted at 11.45/50 up from last Friday 11.35/43

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8-year bonds maturing on 01.08.2024 were quoted at 11.55/55 barely changed from 11.52/58 last Friday

9-year bonds maturing on 15.03.2025 were quoted at 11.55/62 from 11.55/63
10-year bonds maturing on 01.08.2026 were quoted at 11.57/62 Friday 11.62/68
14-year bonds maturing on 15.05.2030 were quoted at 11.85/93 11.85/90

Tomorrow is a market holiday in Sri Lanka. (Colombo/Sept15/2016)

 

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