By Paneetha Ameresekere
Ceylon Finance Today: Friday saw a net foreign outflow (NFO) of Rs 706 million from the Government Securities Market (GSM) in the week ended Wednesday (24 December), taking NFOs in the last four months to date to Rs 48 billion (US$ 364 million), thereby causing further depreciating pressure on the rupee, market sources told Ceylon FT.
"Strengthening of the US dollar against other major international currencies, a buoyant US economy which grew by five per cent in the 3rd quarter, complemented by foreign funds exiting from the GSM (Treasury (T) bonds and T bill) to US based assets are causing downward pressure on the rupee," they said.
Meanwhile, the exchange rate (ER) on thin trades closed Friday (Boxing Day) at
Rs 131.99 to the dollar, both at 'spot next' and 'spot next next' trading under Central Bank of Sri Lanka's (CBSL's) moral suasion umbrella, while trading in the government securities market was also thin due to the holiday season, the sources said.
In a bid to shore up interest rates, in a dual role of trying to satisfy those living off interest income and to mitigate pressure on the ER, CBSL, on Friday, simultaneous with drawing in excess liquidity from its standing deposit facility (SDF) at the low, five per cent interest rate, also held an overnight repo auction and a short term repo auction, by which it drew in further excess liquidity at the higher interest rates of 5.91% and 5.98% respectively.
CBSL, in its monetary policy statement of 23 September said that banks parking their excess liquidity in CBSL's SDF for more than three calendar days a month would be paid the low, five per cent interest rate, rather than the standard, SDF rate of 6.5%. CBSL further said that they will be suspending their repo auctions, only to reintroduce them hardly 10 days later, in the first week of October, in order to push up interest rates.
Meanwhile, CBSL lent Rs 2.4 billion to the Government of Sri Lanka (GoSL), by buying T bills of an equivalent value at Friday's trading, thereby helping to create demand side inflationary pressure on the economy.
As a result, CBSL increased its T bill holdings by nearly 1,700% to Rs 2.4 billion at Friday's trading.
Statistics further revealed that a sum of US$ 143 million (Rs 18.8 billion) was drawn out from CBSL's foreign reserves for the purposes of defending the rupee or GoSL's foreign debt servicing or due to a mix of both.
CBSL, in order to prevent depreciating pressure on the rupee, sells dollars to the market on selective trades at Rs 131.55/65 to the dollar in two way quotes in interbank spot trading, currently.
As a result, market's excess liquidity of an equivalent rupee amount (Rs 18.8 billion) was swallowed up by CBSL in return.
Meanwhile, on the previous market day Wednesday (24 December) too the ER on thin trades closed at Rs 131.99 to the dollar at 'spot next' and 'spot next next' trading under CBSL's moral suasion umbrella, while trading in the GSM was also thin due to the holiday season, sources said.
Nevertheless, the longer tenure T bonds, that is, those maturing on 2021, 2022 and 2024, saw their yields decline by 10 basis points since Friday (19 December) due to local demand, they said. Meanwhile, market's excess liquidity increased by 69% to Rs 18 billion, due to banks parking their excess with CBSL, in order to capitalize on an additional day of interest earned, due to Christmas Day, 25 December being a holiday, they said.
Previously, some of their excess was kept in their own vaults, which however didn't earn interest for them. CBSL pays banks interest at the rate of 6.5% on an overnight basis in the event they park their excess with them for a maximum of three calendar days a month, while the interest paid on other days is a mere five per cent.
www.ceylontoday.lk
Ceylon Finance Today: Friday saw a net foreign outflow (NFO) of Rs 706 million from the Government Securities Market (GSM) in the week ended Wednesday (24 December), taking NFOs in the last four months to date to Rs 48 billion (US$ 364 million), thereby causing further depreciating pressure on the rupee, market sources told Ceylon FT.
"Strengthening of the US dollar against other major international currencies, a buoyant US economy which grew by five per cent in the 3rd quarter, complemented by foreign funds exiting from the GSM (Treasury (T) bonds and T bill) to US based assets are causing downward pressure on the rupee," they said.
Meanwhile, the exchange rate (ER) on thin trades closed Friday (Boxing Day) at
Rs 131.99 to the dollar, both at 'spot next' and 'spot next next' trading under Central Bank of Sri Lanka's (CBSL's) moral suasion umbrella, while trading in the government securities market was also thin due to the holiday season, the sources said.
In a bid to shore up interest rates, in a dual role of trying to satisfy those living off interest income and to mitigate pressure on the ER, CBSL, on Friday, simultaneous with drawing in excess liquidity from its standing deposit facility (SDF) at the low, five per cent interest rate, also held an overnight repo auction and a short term repo auction, by which it drew in further excess liquidity at the higher interest rates of 5.91% and 5.98% respectively.
CBSL, in its monetary policy statement of 23 September said that banks parking their excess liquidity in CBSL's SDF for more than three calendar days a month would be paid the low, five per cent interest rate, rather than the standard, SDF rate of 6.5%. CBSL further said that they will be suspending their repo auctions, only to reintroduce them hardly 10 days later, in the first week of October, in order to push up interest rates.
Meanwhile, CBSL lent Rs 2.4 billion to the Government of Sri Lanka (GoSL), by buying T bills of an equivalent value at Friday's trading, thereby helping to create demand side inflationary pressure on the economy.
As a result, CBSL increased its T bill holdings by nearly 1,700% to Rs 2.4 billion at Friday's trading.
Statistics further revealed that a sum of US$ 143 million (Rs 18.8 billion) was drawn out from CBSL's foreign reserves for the purposes of defending the rupee or GoSL's foreign debt servicing or due to a mix of both.
CBSL, in order to prevent depreciating pressure on the rupee, sells dollars to the market on selective trades at Rs 131.55/65 to the dollar in two way quotes in interbank spot trading, currently.
As a result, market's excess liquidity of an equivalent rupee amount (Rs 18.8 billion) was swallowed up by CBSL in return.
Meanwhile, on the previous market day Wednesday (24 December) too the ER on thin trades closed at Rs 131.99 to the dollar at 'spot next' and 'spot next next' trading under CBSL's moral suasion umbrella, while trading in the GSM was also thin due to the holiday season, sources said.
Nevertheless, the longer tenure T bonds, that is, those maturing on 2021, 2022 and 2024, saw their yields decline by 10 basis points since Friday (19 December) due to local demand, they said. Meanwhile, market's excess liquidity increased by 69% to Rs 18 billion, due to banks parking their excess with CBSL, in order to capitalize on an additional day of interest earned, due to Christmas Day, 25 December being a holiday, they said.
Previously, some of their excess was kept in their own vaults, which however didn't earn interest for them. CBSL pays banks interest at the rate of 6.5% on an overnight basis in the event they park their excess with them for a maximum of three calendar days a month, while the interest paid on other days is a mere five per cent.
www.ceylontoday.lk
