By Paneetha Ameresekere
Ceylon Finance Today: With Rs 5,223 million worth of foreign investments having exited from the government securities market week-on-week, in the week ended Wednesday (29 October) according to statistics, Central Bank of Sri Lanka (CBSL) continued to exert moral suasion on importer (seller) banks, with the exchange rate in interbank spot next trading remaining unchanged at Rs 131 to the US dollar on Friday, market sources told Ceylon FT. Nevertheless, year-on-year (YoY) the exchange rate has weakened by 10 cents, having closed at Rs 130.90 to the dollar in interbank spot trading as at 31 October, 2013, data further showed.
Spot trading is settled in two market days after the date of transaction and in the case of spot next, it's three days.
Moral suasion is imposed on spot by the CBSL at the Rs 130.85 to the dollar price, they said. There however is no moral suasion on the spot next, the sources said.
"But, exporters are holding on to their dollar proceeds, expecting foreigners to continue to exit from the government securities market, with the belief that this 'holding on' would ultimately give them a better price for their dollars in the future," they said.
As a result, seller (exporter) banks are thereby refusing to sell spot at Rs 130.85 with the 'remaining' dollars in their reserves, feeling that the administered price of the dollar, too cheaper a price, they said. Therefore, with 'no trades' being done on spot, seller banks thereby have no option other than to sell their dollars at the spot next price in order to get more rupees, but, at the expense of having to wait for an additional day to get their rupee proceeds from such dollar sales, they said.
However, such exchange controls may but make Government of Sri Lanka's (GoSL's) wish to transform the island into a financial services hub a pipe dream, sources said.
Data further showed that in the last two months Rs 39,134.74 million worth of foreign investments had exited from the government securities market. Foreign investments in government securities have currently come down to Rs 462,284 million.
Foreigners are allowed to invest up to 12.5% in government securities outstanding.
According to latest statistics, government securities outstanding as at Wednesday was Rs 4,024,813 million. Therefore, 12.5% of that number is equivalent to Rs 503,101.63 million. With foreign investments in government securities currently at Rs 462,284 million, this therefore shows that there is space for foreigners to invest up to another Rs 40,817.63 million in government securities outstanding, in absolute terms.
Meanwhile, foreign investments in government securities amounting to a total of Rs 462,284 million as at present, is equivalent to an investment of 11.5% in total government securities outstanding.
This also shows that there is a space of one percentage point yet available for foreign investments in such securities. That is equivalent to Rs 40,817.63 million in absolute terms.
Government securities mean Treasury (T) bills and T bonds.
Sources further said that yields of the longer tenure T bonds fell by around five basis points (bps) at Friday's trading due to local buying interest on thin volumes.
Statistics further showed that CBSL provided an interest free loan of Rs 1,460.88 million to GoSL, by buying Rs 1,460.88 million worth of T bills on Friday. But the danger in such purchases is that it may fuel demand side inflationary pressure on the economy.
According to GoSL controlled Census and Statistics Department, inflation, as measured by the Colombo Consumers' Price Index, increased by 3.5% on a YoY basis in September. Last month's inflation data was not available at the time of going to press.
www.ceylontoday.lk
Ceylon Finance Today: With Rs 5,223 million worth of foreign investments having exited from the government securities market week-on-week, in the week ended Wednesday (29 October) according to statistics, Central Bank of Sri Lanka (CBSL) continued to exert moral suasion on importer (seller) banks, with the exchange rate in interbank spot next trading remaining unchanged at Rs 131 to the US dollar on Friday, market sources told Ceylon FT. Nevertheless, year-on-year (YoY) the exchange rate has weakened by 10 cents, having closed at Rs 130.90 to the dollar in interbank spot trading as at 31 October, 2013, data further showed.
Spot trading is settled in two market days after the date of transaction and in the case of spot next, it's three days.
Moral suasion is imposed on spot by the CBSL at the Rs 130.85 to the dollar price, they said. There however is no moral suasion on the spot next, the sources said.
"But, exporters are holding on to their dollar proceeds, expecting foreigners to continue to exit from the government securities market, with the belief that this 'holding on' would ultimately give them a better price for their dollars in the future," they said.
As a result, seller (exporter) banks are thereby refusing to sell spot at Rs 130.85 with the 'remaining' dollars in their reserves, feeling that the administered price of the dollar, too cheaper a price, they said. Therefore, with 'no trades' being done on spot, seller banks thereby have no option other than to sell their dollars at the spot next price in order to get more rupees, but, at the expense of having to wait for an additional day to get their rupee proceeds from such dollar sales, they said.
However, such exchange controls may but make Government of Sri Lanka's (GoSL's) wish to transform the island into a financial services hub a pipe dream, sources said.
Data further showed that in the last two months Rs 39,134.74 million worth of foreign investments had exited from the government securities market. Foreign investments in government securities have currently come down to Rs 462,284 million.
Foreigners are allowed to invest up to 12.5% in government securities outstanding.
According to latest statistics, government securities outstanding as at Wednesday was Rs 4,024,813 million. Therefore, 12.5% of that number is equivalent to Rs 503,101.63 million. With foreign investments in government securities currently at Rs 462,284 million, this therefore shows that there is space for foreigners to invest up to another Rs 40,817.63 million in government securities outstanding, in absolute terms.
Meanwhile, foreign investments in government securities amounting to a total of Rs 462,284 million as at present, is equivalent to an investment of 11.5% in total government securities outstanding.
This also shows that there is a space of one percentage point yet available for foreign investments in such securities. That is equivalent to Rs 40,817.63 million in absolute terms.
Government securities mean Treasury (T) bills and T bonds.
Sources further said that yields of the longer tenure T bonds fell by around five basis points (bps) at Friday's trading due to local buying interest on thin volumes.
Statistics further showed that CBSL provided an interest free loan of Rs 1,460.88 million to GoSL, by buying Rs 1,460.88 million worth of T bills on Friday. But the danger in such purchases is that it may fuel demand side inflationary pressure on the economy.
According to GoSL controlled Census and Statistics Department, inflation, as measured by the Colombo Consumers' Price Index, increased by 3.5% on a YoY basis in September. Last month's inflation data was not available at the time of going to press.
www.ceylontoday.lk
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