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Thursday April 18th, 2024

Sri Lanka spot market resumes, rupee closes stronger at Rs350/357 to dollar

ECONOMYNEXT – Sri Lanka’s spot market has become active after the central bank reduced a surrender requirement leaving more dollars to be used in the banking system and a trading band was also widened.

The rupee opened around 360/365 to the US dollar and business was done around 356 in intra-day trading, dealers said.

The spot US dollar closed still wide around 350/357 to the dollar.

On Monday several banks sold excess dollars to the central bank at a little higher levels, dealer said.

Sri Lanka’s rupee collapsed in March 2022 and the float failed due to a surrender rule where banks were asked to sell 50 percent of their export receipts and the central bank creating new money.

A float involves suspending all convertibility. A surrender rule is a ‘strong side’ convertibility undertaking which weakens a peg.

Sri Lanka’s spot market died almost two years ago as the central bank printed large volume of money to mis-target rates and create unsustainable outflows.

However from April 2022 rates were hiked and money printing was gradually stopped. Since then a peg or around 360/370 to the US dollar was maintained with the surrender rule preventing the currency from appreciating despite private credit becoming negative.

Sri Lanka is expecting funds from an International Monetary Fund after certain prior actions are completed and China agrees to re-structure debt.

The IMF usually does not give any money until monetary stability has been restored by halting money printing (usually through a float) and using reserves for imports are stopped. Instead a pegged central bank is made to collect reserves.

Related IMF should approve Sri Lanka deal, devise bi-lateral debt-restructuring clause

However due to lack of a consistent policy (either a hard peg or a clean float) such central banks end up in trouble as soon as the economy recovers by trying to operate a policy rate without floating exchange rate. (Colombo/Feb29/2023)

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Sri Lanka’s discussions with bondholders constructive: State finance minister

ECONOMYNEXT – Sri Lankan authorities continue to engage all debt restructuring negotiations in good faith, within principles of equitable treatment among creditors, and with maximum transparency within the norms of such negotiations, State Minister of Finance, Shehan Semasinghe has said.

“It is standard practice, when a representative group of bondholders is formed, to entertain confidential discussions with such group and its appointed advisors. In the case of Sri Lanka, the Ad Hoc Group of Bondholders represents holders controlling more than 50% of the bonds, which make them a privileged interlocutor for Sri Lanka,” Semasinghe said on X (twitter).

“It is well understood that given the price sensitive nature of the negotiations, and according to market regulations, discussions with the Group and its advisors are to be conducted under non-disclosure agreements. This evidently restricts the ability of the Government to unilaterally report about the substance of the discussions.

“The cleansing statement, which was issued on the 16th of April, at the conclusion of this first round of confidential discussions with members of the Group, aims at informing the Sri Lankan people, market participants and other stakeholders to this debt restructuring exercise, about the progress in negotiations. It provides the highest possible level of transparency within the internationally accepted practices in such circumstances.

“As informed in this statement, confidential discussions held in recent weeks with bondholders’ representatives proved constructive, building on the restructuring proposals presented by both parties. During the talks both sides successfully bridged a number of technical issues enabling important progress to be made. Sri Lanka articulated key remaining concerns that need to be addressed in a satisfactory manner.

“The next steps would entail further consultation with the IMF staff regarding assessments of the compatibility of the latest proposals with program parameters. Following these consultations, we hope to continue discussions with the bondholders with a view to reaching common ground ahead of the IMF board consideration of the second review of Sri Lanka’s EFF program.”

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Sri Lanka rupee weakens at 301.00/302.05 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 301.00/302.05 to the US dollar in the spot forex market on Tuesday, from 299.00/10 on Tuesday, dealers said. Bond yields were broadly steady.

A bond maturing on 15.12.2026 closed stable at 11.30/35 percent.

A bond maturing on 15.09.2027 closed at 11.90/12.05 percent up from 11.95/12.00 percent.

A bond maturing on 15.12.2028 closed at 12.10/20 percent down from 12.10/15 percent.

A bond maturing on 15.07.2029 closed at 12.25/40 percent.

A bond maturing on 15.03.2031 closed at 12.30/50 percent. (Colombo/Apr17/2024)

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Sri Lanka Treasury Bill yields down across maturities

ECONOMYNEXT – Sri Lanka’s Treasuries yields were down across maturities at Wednesday’s auction with the 3-month yield moving down 7 basis points to 10.03 percent, data from the state debt office showed.

The debt office sold all 30 billion rupees of 3-month bills offered.

The 6-month yield fell 5 basis points to 10.22 percent, with 25 billion rupees of bills offered and 29.98 billion rupees sold.

The 12-month yield dropped 4 basis points to 10.23 percent with 18.01 billion rupees of bills sold after offering 23 billion rupees. (Colombo/Apr17/2024)

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