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Sri Lanka rupee quoted weaker at 199.50/201.50 levels in one week forwards market

ECONOMYNEXT – Sri Lanka’s rupee quoted at 199.50/201.50 levels to the US dollar in the one week forwards market while the bond yields remained unchanged, dealers said.

The rupee last closed in the one- week forward market at 199/201 to the US dollar on Tuesday and the spot was quoted at 200.75 levels.

Rupee last hit close to 200 to the dollar in March 2020.

Meanwhile, the spot/three-month swap traded at over 1.75 rupee discount, market participants said.

Amid record money printing and low rupee yields driven by so-called Modern Monetary Theory, Sri Lanka’s forward premiums inverted late last year, despite running the biggest balance of payments deficit in the country’s history.

Sri Lanka had also imposed surrender requirements on banks despite the deficit BOP and excess liquidity.

Surrenders to the central bank create more liquidity while depriving dollars to the market to meet any previous excess liquidity that hits the forex market through the credit system.

“Ideally the dollars should be sold to the Treasury, not the central bank, for existing rupees – rupees taken through Treasury auctions on which imports have already been curbed – without expanding reserve money,” ENs economic columnist Bellwether explained.

“The surrender requirement will create more pressure on the peg by generating excess liquidity and the central bank should be prepared to sell dollars to maintain the peg.

“These actions, like the import controls, exchange controls and price controls, will be un-necessary as long as Treasury bill auctions are successful.”

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However rates would then be higher.

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Sri Lanka debt crisis trapped in spurious Keynesian ‘transfer problem’ and MMT: Bellwether

Analysts had warned that given the current monetary set up, any credit recovery will tends to tip the system over the edge. There is also a steady drain of reserves through the financial account.

Excess liquidity dropped to 139.5 billion rupees, from 181 billion rupees on Friday when about 9 billion rupees were printed through a failed Treasury bills auction.

In the secondary market bond yields remained unchanged on dull market trade, dealers said.

Sri Lanka’s debt office is offering 45 billion rupees of bills to be sold in an auction today

A bond maturing on 15.12.2022 was quoted flat at 5.80/90 per cent on Wednesday.

A bond maturing on 15.11.2023 was quoted at 6.25/35 per cent on Wednesday, up from 6.20/30 per cent on Tuesday.

A bond maturing on 01.12.2024 was quoted flat at 6.55/65 per cent on Wednesday.

A bond maturing on 01.05.2025 was quoted at 6.75/90 per cent, steady from 6.70/85 per cent on Tuesday.

A bond maturing on 15.02.2026 was quoted at 7.00/10 per cent, steady from 7.00/15 per cent.

A bond maturing on 15.08.2027 was quoted at 7.45/60 per cent, up from 7.40/50 per cent on Tuesday.

A bond maturing on 15.05.2030 was quoted at 8.10/50 per cent, steady from 8.10/40 per cent Tuesday. (Colombo/March17/2021)

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