Bonds & Forex

Sri Lanka shares edge up at close on positive macro sentiments

Wednesday January 11, 2023 5:19 pm

ECONOMYNEXT – Sri Lanka shares gained on Wednesday after slipping for four sessions on the speculation of interest rates easing as T-bill auction yields fell for second week straight.

“Bourse edged up after four days of being in the red zone as investor confidence slightly improved over the expectation of an economic recovery from 2H2023, as stated by the CBSL in the policy report for 2023,” First Capital Market Research said in it’s daily note.

“It is also noted that inflation is expected to gradually decelerate in the 1H2023 and is likely to reach the desired level towards the end of 2023.”

Treasury counters too had moved up on the anticipation that interests would ease.
At the weekly T-bills auction, the debt office offered and sold 88 billion rupees with all maturities being fully subscribed and yields easing for second week straight.

The 3-months bills fell 86 basis points while the 6-months maturity fell 65 basis points.

The long term one-year maturity fell 12 basis points.

The main All Share Price Index (ASPI) closed at 0.16 percent or 13.18 points higher at 8,380.87

However, the government has decided to cut down expenditure as the financial crisis was worser than they expected it to be.

Market has been falling since the year started due to the proposed 65 percent electricity tariff hike while the government also hiked various excise duties.

The most liquid index S&P SL20 closed 0.17 percent or 4.4 points lower to 2,560.95.

First quarter of 2023 is expected to be negative with the taxations going in to effect from January 1st and there are talks of a hike in electricity tariffs, which has gained Cabinet approval and is waiting for recommendations by the Public Utilities Commission of Sri Lanka.

Whereas the second quarter was expected to be more positive with the anticipation of IMF getting through and with the interest rates expected to ease as the taxes starts to generate funds.

Sri Lanka is expecting a further contraction in the economy after a negative growth in 2022, Cabinet Spokesperson Bandula Gunawardena said at the Weekly Cabinet Press Briefing.

The market witnessed a turnover of 1.3 billion rupees, lower than this month’s 2.1 billion rupees average daily turnover. It is also comparatively much lower than 2022’s daily average turnover of 2.9 billion rupees.

The market saw a net foreign outflow of 12 million rupees. The net foreign inflow for the first seven session of January is 80 million rupees. The total foreign inflow of 2022 was 31 billion rupees.

WindForce pushed the index up to close at 9.5 percent higher at 17.3 rupees.

Melstacorp gained 2.2percent to close at 47 rupees and Hatton National Bank closed 1.9 percent higher at 77 rupees a share. (Colombo/Jan11/2023)

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Economy

Sri Lanka seeks to settle India ACU debt, credit lines over 5-years

Sunday March 26, 2023 9:22 am

ECONOMYNEXT – Sri Lanka has requested India to settle payments due to the country under the Asian Clearing Union mechanism and credit lines given in 2022 over 5 years, Indrajit Coomaraswamy, an advisor the island’s government said.

Sri Lanka is negotiating with India to settle the money over a 5-year period, Coomaraswamy, a former central bank governor told an online forum hosted by the Central Bank.

“Our request from the Indians is to settle it over five years,” he said. “That I think is still in the early stages of negotiation. The same with the one billion line of credit.”

Sri Lanka’s central bank owed the ACU 2.0 billion US dollars to the Asian Clearing Union according to a year end debt statement, issued by the Finance Ministry.

Sri Lanka owned India, 1,621 million dollars according to ACU data by year end, excluding interest.

India has given a 1 billion US dollar credit line to Sri Lanka as well a credit line for petroleum.

Sri Lanka in March 2024 has paid 121 million US dollar out of a 331 million US dollar IMF tranche to settle an Indian credit line.

Indian credits were given after the country defaulted in April 2022 as budget support/import when most other bilateral lenders halted giving money. (Colombo/Mar26/2023)

Bonds & Forex

Sri Lanka coconut auction prices up 1.16-pct

Sunday March 26, 2023 7:26 am

ECONOMYNEXT- Sri Lanka’s coconut auction prices went up by 1.16 percent from a week ago at an auction on Thursday, data showed.

The average price for 1,000 nuts grew to 83,219.45 from 82,260.58 a week earlier at the weekly auction conducted by Sri Lanka’s Coconut Development Authority on March 23.

The highest price was 92,500 rupees for 1,000 nuts up from the previous week’s 90,600 rupees, while the lowest was 76,500 also up from 70,000 rupees.

The auction offered 900,010 coconuts and 583,291 nuts were sold. (Colombo/Mar 26/2023)

Economy

Sri Lanka in talks for billion dollar equivalent Indian rupee swap

Saturday March 25, 2023 6:44 am

ECONOMYNEXT – Sri Lanka is in talks with India for a billion US dollar equivalent Indian rupee central bank swap, to facilitate trade, Indrajit Coomaraswamy, ad advisor to the government said.

“The amount is still uncertain it could be up to the equivalent of a billion US dollars,” Coomaraswamy told an online forum hosted by Sri Lanka’s central bank.

The money will be used to facilate India Sri Lanka trade, he said.

India has been trying to popularize the use of Indian rupees for external trade and also encouraged Sri Lanka banks to set up Indian rupee VOSTRO accounts.

However the first step in popularizing a currency for external trade is to get domestic agents, especially exporters, to accept their own currency for trade, like in the case of the US or EU, analysts say.

India’s billion US dollar credit to Sri Lanka given during the 2022 crisis is settled in Indian rupees (transaction need).

However the Indian government itself has chosen to denominate it in US currency for debt purposes (future value).

In most South Asian nations, receivers of remittances are willing to accept domestic currencies, leading to active VOSTRO account transactions.

Sri Lanka is expected to repay a 400 million US dollar swap with the Reserve Bank of India next year under an International Monetary Fund backed program for external stability and debt re-structuring.

Central bank swap proceeds sold to banks, which are then sterilized with inflationary open market operations, can trigger forex shortages and currency crises, analysts warn.

Sri Lanka went to the International Monetary Fund after two years of inflationary monetary operations by the central bank’s issue department (money printed to suppress interest rates) triggered the biggest currency crisis in its history and external sovereign default.

Sri Lanka had gone to the IMF 16 times with similar external troubles except for the April 2003 extended fund facility under Central Bank Governor A S Jayewardene which was a purely reform-oriented program with the World Bank (PRGF/PRSP) program at a time when he was collecting reserves with deflationary monetary policy and perhaps the lowest inflation since the Bretton Woods collapsed. (Colombo/Mar26/2023)