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Wednesday December 6th, 2023

Sri Lanka sells US$76mn in August after liquidity injections

ECONOMYNEXT – Sri Lanka’s has sold 76.4 million dollars to defend a soft-dollar peg, which shortly ater tens of billions of printed money on top of a period of prolonged excess liquidity from unsterilized dollar purchases.

The central bank 128 million US dollars from the interbank market in July to inject base money into the banking system, official data show.

The central bank effectively stopped mopping up injections on July 11 after selling down its Treasury bill stock from 118 to 107 billion rupees and allowed excess liquidity to build up in the next few weeks.

Banks deposited 19 billion rupees in excess liquidity at the central bank on July 12.

By August 06, banks were depositing 40 billion rupees of unsterilized cash in the central bank’s excess window.

But from August 08, the central bank started printing around 20 to 25 billion rupees a day through domestic operations, to drive up excess liquidity further.

On the following week a large 25 billion rupee liquidity withdrawal was made, by a disruptive sell-down of central bank held Treasury bills and lower amounts of money was printed.

The large volumes of money were apparently printed to suppress a call money rate.

Around the same time, money was also printed up to 10 months or more at rates below the overnight liquidity injection window rate.

Though the central bank buys dollars stop the rupee going up (a strong side convertibility undertaking), even if the rupee strengthens intra-day or mop up excess liquidity before breaking the peg and floating.

Dollar sales (weak side convertibility undertaking) are delayed until the rupee falls in a ‘disorderly adjustment’, in a float.

“There is no ‘disorderly adjustment’ when the rupee strengthens dollars are bought,’ explains, EN’s economic columnist Bellwether.

“Dollar are bought even when the rupee is floated and there is an intra-day strengthening.

“While excess liquidity is left unsterilized for long periods when the rupee is strong and dollars are bought, liquidity shorts are filled overnight when the rupee is weak under a ‘flexible exchange rate’.

“As a result money and exchange policies are weighted against the rupee in this ‘flexible exchange rate’. In this way it is possible to generate pressure on the rupee even when private credit is weak.”

The falling rupee then spooks, importers, foreign investors and also exporters generating monetary instability.

The rupee fell around 176 to 180 to the US dollar in the current period of instability.

Sri Lanka’s private credit has been weak or negative for most of 2019, which analysts have said will help recover from monetary instability quicker.

Foreign investors have also reduced sales of rupee bonds in the past two weeks. In the week to September 11, the stock of rupee bonds held by foreigner fell to 110.2 billion rupees from 110.8 billion rupees a week earlier.

On August 23, the central bank cut rates and printed money to enforce a call money rate, despite weakness is government revenues.

Further complicating monetary management are legacy swaps, which are forward exchange guarantees given by the central bank. Analysts have called for the practice to be banned as China did to strengthen its currency in the 1990s. (Colombo/Sept16/2019)

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Sri Lanka rupee closes stronger at 327.40/90 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 327.40/90 to the US dollar on Tuesday, from 328.10/30 the previous day, dealers said.

Bond yields were stable.

A bond maturing on 01.06.2025 closed at 13.60/70 percent from 13.70/14.00 percent.

A bond maturing on 01.08.2026 closed at 13.90/14.00 percent from 13.90/14.10 percent.

A bond maturing on 15.01.2027 closed at 14.00/15 percent from 14.00/14.10 percent.

A bond maturing on 01.07.2028 closed at 14.10/20 percent from 14.20/35 percent.

A bond maturing on 15.05.2030 closed at 14.20/35 percent, from 14.25/45 percent.

A bond maturing on 01.07.2032 closed at 14.10/35 percent, from 14.05/40 percent. (Colombo/Dec5/2023)

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Sri Lanka stocks close down as investor sentiment dips

ECONOMYNEXT – The Colombo Stock Exchange closed down on Tuesday, CSE data showed.

The All Share Price Index was down 0.40 percent, or 43.50 points, at 10,700.09.

The S&P SL20 index was up 0.43 percent, or 13.32 points, at 3,054.41.

Turnover was at 711 million. The capital goods sector contributed 172 million, the food, beverage and tobacco sector contributed 140 million, and banks 113 million of this.

Top positive contributors to the ASPI in the day were John Keells Holdings Plc (up at 193.00), Richard Pieris And Company Plc (up at 19.80), and Nation Lanka Finance Plc, (up at 0.40).

Negative contributors were Commercial Bank of Ceylon Plc (down at 89.70), Sampath Bank Plc (down at 71.00), and Central Finance Company Plc, (down at 106.00). (Colombo/Dec5/2023).

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Sri Lanka plans to reduce number of school grades from 13 to 12

ECONOMYNEXT – The Ministry of Education proposes to reduce the number of school grades from 13 to 12, according to a government information department statement.

“Every child will be given the opportunity to finish school in 17 years through the proposed new education reforms,” education officials were quoted as saying after a discussion on budget allocations.

Under the proposed system, pre-school education will be at the age of 4 years, the primary section between grades 1-5, junior section between grades 6-8, and senior section between grades 9-12.

The General Certificate of Education Ordinary Level Exam (GCE O/L) is proposed to be conducted in grade 10, and the Advanced Level Examination in grade 12.

It has also been decided to reduce the number of mandatory subjects at the GCE O/L Exam from 9 to 7.

Three new subjects, information and communication technology (ICT), technical and professional skills, and religion and values will be made mandatory and included in those 7 subjects. (Colombo/Dec5/2023)

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