Friday 3 October 2014

CBSL ups 'benchmark' interest rate

By Paneetha Ameresekere

Ceylon Finance Today: Central Bank of Sri Lanka (CBSL) which only a few days ago said that they will no longer conduct any repo auctions went back on their word yesterday, by conducting three term and one overnight repo auctions to cream off excess liquidity from the market.


The weighted average yields fetched at this auction were 6% or thereabouts, an indication that they don't want the base rate to be a low 5% as was previously indicated, therefore the reintroduction of these auctions, market sources told Ceylon FT.

CBSL, when they made known their monthly monetary policy review hardly two weeks ago, said that they will no longer hold repo auctions. CBSL further said banks parking their excess cash in CBSL's overnight standing deposit facility (SDF) for more than three days a calendar month, will not be paid the SDF rate of 6.5%, but a rate less, that is by 150 basis points (bps) to 5%, effectively making the SDF rate 5%.

But sources said that with savers hit due to a low interest rate regime and elections round the corner, the new 6% base rate as indicated by yesterday's repo auctions was a move by the authorities to appease savers by giving a fillip for them to obtain an enhanced return at the eve of an expected presidential election.

They told this reporter that one of the reasons why the then UNP/UNF Government of Ranil Wickremesinghe lost the April 2004 general elections was due to a low interest rate regime prevailing also then, which had had disenchanted voters.

Sources also attributed yesterday's rejection of the weekly Treasury (T) bill auction by the authorities was due to low rates offered by the market, with fears that such low rates would also cascade down to real interest (deposit) rates.

They further said that with CBSL giving the message that they want interest rates to go up by 100 bps yesterday, that resulted in the 'more liquid' 15 September 2019 maturity gaining by between 10-15 bps at secondary market trading to close the day at 6.85/95% in two way quotes.

In related developments, with CBSL's moral suasion bearing on the exchange rate (ER) at Rs 130.90 to the US dollar in 'spot next' trading, the ER, which at the beginning of trading weakened to be quoted at Rs 130.60/90 to the dollar in two way quotes, however, subsequently strengthened to close the day at Rs 130.35/55 to the dollar due to exporter conversions.

"A mix of moral suasion and CBSL increasing its benchmark rate by 100 bps to 6% induced exporters to encash their dollar proceeds, which, previously they held back from doing so on the belief that the rupee will weaken further," the sources said.

Meanwhile, CBSL bought T bills totalling Rs 13,309.38 million yesterday, helping to swell excess liquidity, as captured by CBSL's SDF facility and overnight repo window to Rs 93,131 million, down Rs 2,471 million (2.6%) from the previous day's figure of Rs 95,602 million.

The depreciation of excess liquidity by a sum of Rs 2,471 million plus CBSL swelling excess liquidity by buying T bills to the tune of Rs 13,309.38 million showed that a minimum of foreign exchange (FX) or US dollars equivalent to Rs 15,780.38 million (US$ 120.97 million) was creamed off for debt servicing.

The required dollars were obtained from CBSL's FX reserves and not from the FX market, for fear that if such an amount was obtained from the FX market, that would have caused further pressure for the rupee to depreciate.


According to latest statistics, the daily average turnover (DAT) in the FX market last week was US$ 79.76 million. Therefore a figure of US$ 120.97 million would be equivalent to 152% of the DAT in the FX market for that week.
www.ceylontoday.lk

No comments:

Post a Comment