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Tuesday September 28th, 2021
Economy

Sri Lanka rupee swap discounts ease further, exporter parallel rates up

ECONOMYNEXT – Sri Lanka’s inverted rupee/dollar swap rates (discounts) have eased further and some banks are paying exporters higher than 203 for US dollars, especially to meet financial outflows, market participants said as the repayment of a billion dollar sovereign bonds was awaited.

Sri Lanka’s state minister for money and capital markets Nivard Cabraal said money to repay bond holders are being sent as promised and meet the payments on July 27.

Sri Lanka has been keeping the promise to honour all maturing debt.

There is a 203 to the US dollar ceiling promoted by authorities for dollars sold to importers and an interbank trading ceiling of 200 to the US dollar effectively. The ceiling also limited the price paid to exporters to 203 rupees per dollar.

Banks then started rationing dollars to importers of consumer goods in particular declining to issue letters of credit.

However some banks are offering higher rates to exporters around 204.50 to 206.00 to the US dollar market participants said, especially to meet financial outflows such as stock market flows in a parallel market.

Some importers, who had brought goods without LCs (DA/DP terms) based on long term relationships were forced to pay demurrage, pushing up costs as containers piled up at the port as they waited for dollars to pay import bills and banks declined to accept documents without dollars to pay for them.

Some importers have also started to meet exporters directly to beg for dollars.

Sri Lanka’s rupee had come under severe pressure as liquidity was injected (reserve money was inflated in excess of the external monetary anchor) in so-called ‘modern monetary theory to keep overnight and gilt yields down, triggering a run on forex reserves (a balance of payments deficit).

On Thursday excess liquidity fell to zero amid reserve outflows and call rates edged up to around 5.12 per cent.

Monday both call and repo were around 5.10 per cent, dealers said.

When downgrades came in late 2020, forward rates inverted as banks tried to cover their dollar loans including to a state petroleum distributor, amidst dwindling credit lines.

With the repayment of some Sri Lanka Development Bonds and the hiking of petroleum prices, some pressure had come off the swap market. A state bank staying off the long end of the market had also helped reduce swap rates.

This week swap rates eased further, market participants said.

Spot/1 month swaps were quoted around – (negative) 20/00 cents

Spot/3 months – (negative) – 170/060

Spot/6 months – (negative) – 550/230

Spot/12 months (negative) – 1000/700

In mid-July swap rates were higher.

Spot/1 months was quoted at a discount of 120/150 cents.
Spot/2 months 250/310
Spot/3 months 400/470
Spot/6 months 500/805
Spot/1 year 1100/1200 cents

On July 27, a billion US dollar sovereign bond is maturing. Of that, over 300 million US dollars are estimated to be held by domestic investors.

In bond markets, gilt yields remained unchanged from their previous close on Thursday, market dealers said.

A 2-year bond maturing on 15.12.2022 quoted flat at 5.75/95 per cent on Monday from Thursday’s close.

A bond maturing on 15.01.2023 quoted flat at 5.75/85 per cent on Monday.

A bond maturing on 15.09.2024 quoted flat at 6.68/78 per cent on Monday from Thursday’s close.

A bond maturing on 01.02.2026 quoted at 7.35/45 per cent unchanged from Thursday.

A bond maturing on 15.08.2027 unchanged at 7.55/80 per cent from the last closing.

A 10-year bond maturing on 15.05.2030 quoted unchanged at 8.25/50 per cent from Thursday.

(Colombo/July26/2021)

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