Sri Lanka’s 06-month Treasuries yield falls below June inflation

ECONOMYNEXT – Sri Lanka’s Treasuries yields dropped across maturities at Wednesday’s auction with the 6-month yield falling to 4.69 percent, below the 4.7 percent inflation recorded in Colombo June 2020, data from the state debt office showed.

Sri Lanka’s nation-wide inflation was 6.3 percent in June, which is higher than the 12-month inflation.

Inflation however is historical and interest rates relate to the future. In January 6-month bills were sold at a little above 8 percent.

The debt office sold 6.4 billion rupees of 3-month bills after offering 4.6 billion rupees, at an average yield of 4.60 percent, down 05 basis points from a week earlier.

11.3 billion rupees of 6-month bills were sold after offering 6.0 billion rupees at 4.69 percent down 06 basis points from a week earlier.

17.3 billion rupees of 12-month bills were sold after offering 24.5 billion rupees.

The debt office sold a total of 35.1 billion rupees of bills after offering the same volume.

The three month yield is now close to the 4.50 percent floor rate of the policy corridor.

Unlike in January when the central bank was injecting money to enforce a ceiling policy rate, in July there is no new injections to enforce a rate cut, though part of the excess liquidity that triggered a currency collapse and raised fears of default still remains.

The central bank has sold down some of its Treasury bill stock to withdraw excess liquidity amid a slowdown in domestic credit. Any liquidity withdrawn can save or built up foreign reserves and delay a potential sovereign default, analysts say.

Sri Lanka’s is also under a trade lockdown not seen since the 1970s which were imposed at the rupee came under pressure from earlier injections, which is hurting businesses and economic activity. (Colombo/July22/2020)