Sri Lanka rupee opens weaker amid excess liquidity, gilt yields edge up

ECONOMYNEXT – Sri Lanka’s rupee opened weaker at 177.30/45 against the US dollar on Tuesday while stocks opened 0.18 percent lower and bonds yields edged up marginally, brokers and dealers said.

Rupee closed at 176.90/177.00 against the greenback on Monday.

Excess liquidity in money markets has been above 30 billion rupees July 17, when the central bank last sold down a material part of its Treasury bills stock.

After selling down its bill stock, by 10 billion rupees to 108 billion rupees on July 11, the central bank has effectively halted mopping up inflows. Since then the bill stock had fallen about around a billion rupees a week.

Since Sri Lanka is running a de facto peg, more than the policy rate, excess liquidity drives monetary instability and before floating liquidity has to be tightened. Recent excess liquidity has come from dollar purchases.

The government had also started giving a salary hike from August, which is likely to push consumption and imports up.

In international markets, the Yuan and oil has weakened, which may point to a strengthening of the US dollar, analysts say.

In equities, Colombo’s All Share Price Index (ASPI) was down 10.73 points to 5,878.94, and the S&P SL20 Index of more liquid stocks fell 0.72 percent or 20.88 points to 2,875.64, in the first half-hour of trade.

Market turnover was 196 million rupees with 25 stocks gaining and 39 falling.

Commercial bank of Ceylon fell 1.70 rupees to 103.50 rupees a share and Sampath Bank was down 3.40 rupees at 160.00 rupees a share.

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In bonds, yields gained marginally in an active market, dealers said.

Dealers said activity centered on 2024 maturities.

A bond maturing on 15.10.2021 was quoted at 8.75/80 percent on Tuesday, up from 8.68/73 percent at Monday’s close.

A bond maturing on 15.03.2023 was quoted at 9.35/45 percent, steady from 9.35/40 percent.

A bond maturing on 05.06.2024 was quoted at 9.81/85 percent, gaining from 9.68/72 percent.

A bond maturing on 01.08.2026 was quoted at 9.90/10.00 percent, up from 9.87/92 percent.

A bond maturing on 15.01.2027 wasq quoted at 9.97/10.05 percent, edging up from 9.87/97 percent.

A bond maturing on 01.05.2029 was quoted at 9.98/10.08 percent, up from 9.90/10.05 percent. (COLOMBO, 6 August, 2019)

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