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Sri Lanka stocks plunge after budget; bonds quiet, rupee held

COLOMBO (EconomyNext) – Sri Lanka stocks plunged Friday, bond markets were quiet and the rupee remained under pressure in the aftermath of a budget that raised spending and imposed one-off taxes on large corporates, traders and dealers said.

Stocks plunged 2.5 percent by mid-day Friday with large corporates leading the fall, though all stocks were caught in a broad based sell-off.

Bond markets were quiet with the 2-year bonds quoted at 6.90/7.0 percent and 3-year bonds quoted at 7.05/10 percent, largely unchanged from a day earlier.

In forex markets there was no trading in the spot market amid central bank moral suasion and spot-next and spot next-next is at nominally capped at 133.50 levels by the Central Bank.

Based on forward trading, spot is around 133.35 though the central bank has been giving dollars at around 132 levels in recent days, for selected names, dealers said.

Sri Lanka’s banking system is sitting on a mountain of excess liquidity which has started moving with credit growth picking up, requiring interventions.

Sri Lanka’s new administration yesterday raised spending, while cutting taxes raising fears that domestic credit demand could go up further.