ECONOMYNEXT – Sri Lanka rupee was quoted around 194.50/195.00 in the spot market in mid morning trade Wednesday firmer from yesterday’s 195.50/196.50 levels, while bond yield were slightly higher ahead of a bond auction, dealers said.
The rupee closed around 195.50/196.50 to the US dollar on Tuesday.
Excess liquidity in Sri Lanka’s money markets had been dropping steeply in recent days amid unsterilized dollar sales.
Lower levels of liquidity can reduce the pressure on the currency but short term interest rates have not yet moved.
Out of line interest rates had led to a steady fall in reserves as Sri Lanka’s highly unstable peg came under pressure from mostly from financial sector outflows amid high levels of excess liquidity and weak confidence following downgrades.
With domestic dollar yields outstripping rupee yields forward premiums had inverted. Sri Lanka’s central bank has since closed the forward market.
In January money is usually printed for provisional advances and analysts say in years the peg was managed better, the advances were mopped up to prevent currency pressure in February and March, when state sector salaries also go up after the budget.
In the last week of the month usually remittances and exporter conversions also take place. Credit data for January had not been released but the central bank sold down some Treasury bills in January without pushing up rates.
However the 75 billion rupee bond auction took the market by surprise, participants said.
Bond yields were slightly higher ahead of the bond auction.
A bond maturing on 01.10.2023 was quoted at 5.75/85 percent up from yesterday’s 5.70/75 percent.
A bond maturing on 01.12.2024 was quoted at 6.35/38 percent, up from 6.30/33 percent a day earlier.
The maturity is being auctioned with a estimated cut off of 6.35 percent.
A bond maturing on 01.02.2026 bond was quoted at 6.70/80 percent up from yesterday’s 6.65/75 percent. (Colombo/Jan27/2021)