Sri Lanka rupee falls after open, bond yields steady

ECONOMYNEXT – The Sri Lanka rupee was quoted at 181.50/70 to the US dollar in the spot market in mid-morning trade Monday amid excess liquidity, while bonds yields were steady, dealers said.

The rupee closed at 180.95/181.00 against the greenback in the spot market on Thursday and 181.10/25 on Friday.

Banks deposited 49 billion rupees of excess liquidity in the central via overnight repo auctions and at the deposit window on Friday.

Sri Lanka’s central bank runs skewed money and exchange policies to depress the rupee, critics have said. It buys dollars at market rates, engages in Soros-style swaps to push up excess liquidity but does not sell dollars at the same rate. Dollars are sold after ‘disorderly fall’ but does not wait for a ‘disorderly rise’ to buy or engage in Soros-style swaps to inject base money.

Excess liquidity kept un-sterilized for extended periods, allowing rate to fall but any drop in liquidity either through dollar sale is filled overnight to stop rates from going up.

The central also injects base money through forward exchange contracts and so-called Soros-style swaps. Analysts have called for a ban on forward exchange contracts (central bank swaps) to prevent monetary instability in future monetary reform.

The rupee is falling despite weak private credit, though government finances had been hit by monetary instability in 2018 which has hit credit and imports.

A bond maturing on 15.12.2021 was quoted at 8.90/98 percent on Monday down from 8.90/97 percent on Friday.

A bond maturing 15.07.2023 was quoted at 9.83/90 percent, from Friday’s 9.85/90 percent

A bond maturing on 15.09.2024 was quoted at 10.25/28 percent from Friday, 10.25/32 percent.

Story continues below
Advertisement
Story continues below
Advertisement

A 15-year bond maturing on 15.09.2034 which was sold at the last auction was quoted at 10.82/87 percent from Friday’s, 10.83/88 percent. (Colombo/Sep20/2019)