Sri Lanka rupee steady, bonds yields slightly higher

ECONOMYNET – Sri Lanka’s rupee was quoted wide at 179.30/180.00 levels to the US dollar in the spot market at opening Friday, and bonds were slightly higher and money markets were showing signs of tightening with higher levels of forex interventions, dealers said.

Sri Lanka’s Parliamentary Speaker met President Maithripala Sirisena Thursday afternoon in a bid to end a political crisis that has gripped the country for more than a month. The President is due to meet the United National Front and the Tamil National Alliance later Friday.

The rupee closed around 179.70/90 to the US dollar Thursday, dealers said.

The central bank which had allowed the rupee to trade more freely in recent days was seen resuming interventions this week, dealers said.

In money markets call money and repo were quoted at 8.90/9.00 percent.

The market liquidity short which was sterilized with printed money was steady around 108 billion rupees for more than a week had climbed to about 120 billion by Thursday, which is indicative of resumption of forex market interventions.

Analyst say a resumption of sterilization following interventions points to more pressure on the currency ahead and tightening of money markets.

The central bank was printing money as low as 8.35 percent last week, after raising rates to 9.0 percent from 8.50 percent, which could undermining both the rate hike and any benefit from reduced interventions.

The lowest rate at which overnight money was printed went up to 8.55 percent on November 29, from 8.35 percent on November 23.

Sri Lanka operates a soft-pegged exchange rate regime, where money is printed to fill liquidity shortages after intervening in forex markets. To break the cycle of interventions and liquidity injections, which generate more reserve losses, the currency has to be floated.

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In bond markets a three-year bond maturing on 01.03.2021 was quoted at around 11.65/80 percent on Friday around the same levels 11.65/80 percent a day earlier.

A five-year bond maturing on 15.07.2023 was quoted around 11.85/11.98 percent, from 11.92/12.00 a day earlier.

An 8-year bond maturing on 15.06.2027 was quoted at around 12.20/35 percent, from yesterday’s closing of 12.25/30 percent. (Colombo/Nov30/2018)

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