Sri Lanka rupee slightly weaker, CB sells down Treasuries stock

ECONOMYNEXT – Sri Lanka’s rupee was trading at 176.50/60 against the US dollar, slightly weaker than Friday while bonds markets were quiet with yields largely unchanged from Friday, dealers said, while central bank sold own a part of its bill holdings.

The rupee closed around 176.40/50 to the US dollar Friday.

Overnight money was quoted at 7.90/8.00 percent and gilt-backed repos were at 7.90/8.20 percent, after a 50 basis point rate cut last Friday.

On Friday the central bank has sold down some of its bill holdings as the weekly bill auction was settled. The central bank’s bill stock fell to 138 billion rupees on May 31, from 155 billion rupees a day earlier.

Overnight excess liquidity fell to 9.64 percent.

Sri Lanka money markets have had excess liquidity in recent months, as domestic credit weakened and the central bank bought dollars to prevent the rupee from appreciating, creating new money.

Selling down bills mops up liquidity (sterilizes) permanently, and stops banks from giving the new money as loans helping build up forex reserves.

Sri Lanka cut policy rates by 50 basis points taking the rate at which excess liquidity is deposited at the central bank window to 7.50 percent from 8.0 percent and ceiling rate at which new money is printed to 8.50 percent from 9.00 percent.

Amid excess liquidity generated from a balance of payments surplus, overnight money market rates have moved towards the floor policy rate, making it the active rate.

The central bank has been cautiously mopping up, liquidity, which may have kept overnight rates above the free market, around 8.50 percent before the rate cut, analysts have said.

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On Monday a 25 billion rupees overnight auction and 30 billion 8 day auction was called as two earlier term repo deals matured.

Bond markets were quiet with yields largely unchanged, dealers said.

One year bills were quoted at 8.80/88 from Friday’s 8.85/88 percent dealers said.

A bond maturing on 15.12.2021 was quoted at 9.35/45 percent on Monday early trade unchanged Friday close.

A bond maturing on 15.03.2023 was quoted at 9.80.90 closed at 9.85/90 percent from Friday’s closing of 9.83/88 percent.

A bond maturing on 15.03.2024 was quoted at 9.95/03 wider from Friday’s 9.97/10.01 percent.

A bond maturing on 01.08.2026 was quoted at 9.28/33 from Friday’s 9.25/33 percent.

A bond maturing on 15.01.2027 was quoted 10.38/42 percent from Friday’s 10.36/40 percent.

A 10-year bond maturing on 01.05.2029 was quoted at 10.43/50 percent from Friday’s 10.45/49 percent. (Colombo/June03/2019)
 

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