Sri Lanka rupee weakens amid excess liquidity, bond yields slightly up

ECONOMYNEXT– The Sri Lanka rupee opened weaker with the spot US dollar quoted wide around 181.00/40 to the US dollar on Friday, while bond yields gained marginally and stocks opened 0.11 percent lower, brokers and dealers said.

The rupee closed at 180.95/181.00 against the greenback in the spot market on Thursday. Banks have been depositing around 70 billion rupees in excess liquidity on 18 September apparently from a dollar purchase by the central bank which undermined a float.

Though the central bank buys dollars including form the Treasury to push up liquidity deploying a strong side convertibility undertaking – even the rupee is weak – it waits until a ‘disorderly fall’ of the rupee to deploy a weak side undertaking.

By purchasing dollars to inject base money in to the banking system, the central bank operates a pegged exchange rate regime, analysts have pointed out.

On the 19th banks deposited about 38 billion rupees in the excess liquidity window and another 20 billion rupees was taken out overnight. The central bank also offered to inject longer term money through bond purchases.

However money and exchange policies are applied unevenly, analysts have pointed out, leading to permanent falls on the rupee since independence.

There have been calls to bring law to curb the activities of the central bank to stop a so-called highly unstable ‘flexible exchange rate’ from generating monetary instability.

In equities, Colombo All Share Price Index (ASPI) fell6.24 points to 5,804.80.

The S&P SL20 of more liquid stocks was down0.28 percent or 7.69 points to 2.,779.26, in the first hour of trade.

The market turnover was 84 million rupees with 15 stocks gaining and 22 falling.

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John Keells Holdingsfell1.00 rupee to 150.40 rupees a share, Sampath Bank was down2.70 rupees to 156.00 rupees a share and LOLC Financefell 10 cents to 3.70 rupees a share, contributing to the fall of the ASPI.

In the secondary bond market, gilt yields were marginally up, dealers said.

A bond maturing on 15.10.2021 was quoted flat at 10.00/10.10 percent on Friday from 10.00/05 on Thursday.
A bond maturing on 15.03.2023 was quoted unchanged at 9.80/95 percent.

A new bond maturing on 15.09.2024 remained flat at 10.30/34 percent.

A bond maturing on 01.08.2026 was quoted not quoted.

A bond maturing on 01.05.2028 was quoted not quoted.

A 15-year bond maturing on 15.09.2034 was quoted at 10.86/88 percent, down from 10.90/95 percent. (Colombo/Sep20/2019)