Sri Lanka rupee opens slightly firmer, stocks down 0.02-pct

ECONOMYNEXT – Sri Lanka’s rupee opened slightly firmer at 177.35/45 against the US dollar on Monday, while stocks opened 0.02 percent lower and bond yields edged up, dealers said.

The rupee closed at 177.50/20 against the greenback on Friday.

Sri Lanka central bank effectively stopped mopping up inflows from July 17 and allowed excess liquidity to climb up to 50 billion rupees by July 30.

From August 07 the domestic operations department started to print money into the system near the deposit rate against domestic assets through term reverse repo deals instead of near the lending rate to push up excess liquidity putting further pressure on the rupee, analysts say.

. In August 2018, the central bank pushed excess liquidity up with unsterilized purchases and also through rupee dollar swaps, weakening a peg.

The peg was further weakened with excess liquidity from a Soros-style swap, analysts pointed out.

The weakening of the peg came ahead of a large legacy swap maturing or a forward exchange guarantee in 2018. Under Sri Lanka monetary law forward exchange guarantees by the central bank are not yet banned.

After weakening the peg with prolonged excess liquidity ahead of the maturity of the forward guarantee, liquidity was then injected after the swap matured, generating a run on the rupee.

In 2019 however private credit is weaker than in 2018 but the budget deficit is higher.

Analysts have called for criminal penalties against certain reckless actions of the domestic operations department.

In planned reforms to monetary law some actions such as outright purchases of bills with printed money are expected to be outlawed, according to publicly available information.

In equities, Colombo’s All Share Price Index (ASPI) was down 1.37 points to 5,893.14 and the S&P SL20 index of more liquid stocks gained 0.09 percent or 2.57 points to 2,908.38 in the first hour of trade.

Market turnover was 174.5 million rupees with 21 stocks gaining and 33 falling.

Sri Lanka Telecom opened 1.20 rupees down at 28.60 rupees a share, LOFC Finance fell 10 cents to 3.80 rupees a share and Nations Trust Bank was down 1.90 rupees to 81.10 rupees a share, pushing ASPI down.

In the secondary bond market, bond yields were up in moderate trading.

Dealers said short tenor maturities 2021, 2023 and 2024 were the most liquid.

A bond maturing on 15.10.2021 was quoted at 8.95/9.10 percent on Monday, up from 8.90/00 percent at Friday’s close.

A bond maturing on 15.03.2023 was quoted 9.65/80 percent, gaining from 9.60/70 percent.

A bond maturing on 15.06.2024 was quoted at 9.95/10.00 percent, edging up from 9.90/00 percent.

A bond maturing on 01.08.2026 was quoted at 10.05/15 percent, up from 10.02/12 percent.

A bond maturing on 15.01.2027 was at 10.10/20 percent, stable from 10.10/17 percent.

A bond maturing on 01.05.2028 was quoted flat at 10.10/20 percent.

A 20-year bond maturing on 15.08.2039 was quoted unchanged from the previous close of 10.20/35 percent. (COLOMBO 19 August 2019)