Sri Lanka rupee weakened to 134.30 US dollar, activity in bonds

ECONOMYNEXT – Sri Lanka’s rupee intervention rate was weakened by authorities to 134.30 to the US dollar Friday down 15 cents from a day earlier, while bond markets saw some activity, ahead of monetary policy decision Monday, dealers said.

In bond markets yields were almost unchanged from Thursday but some activity was seen in 2, 5 and 8-year bonds, dealers said.

Two-year bond maturing on 15.05.2017 were quoted around 7.70/80 percent, 3-year bonds (01.04.2018) at 8.25/35 percent, 5-years (01.05.2020) at 8.90/9.20 percent, 8-years (01.09.2023) at 9.90/95 percent and 10-year bonds (01.08.2025) at 10.05/15 percent dealers said.

Overnight call money was traded at 6.30 percent and gilt backed repurchase deals were done 6.50 percent dealers said. With no reverse repo auctions to print money overnight, repos were quoted around 6.40/50 percent levels.

Sri Lanka rupee has come under presure from a  deteriorating budget deficit which was accommodated by loose policy from the Central Bank.

Excess liquidity dropped to 38 billion rupees Thursday from 45 billion rupees a day earlier with 2.7 billion rupees of overnight reverse repo injections maturing, indicative of further flight of dollars.

Sri Lanka’s Central Bank has printed 87 billion rupees since June, injecting cash into the banking system since June after injecting more rupee reserves up to that mine by terminating term repo transactions generating an unsustainable credit and import bubble.

Policy rates were also cut in April, despite budget deficits deteriorating adding fuel to the pressure on forex markets.

A monetary policy announcement is due Monday. Though economic stability hawks says a rate hike was necessary from at least January 2015. (Colombo/Aug28/2015)

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