Ceylon Finance Today: Central Bank of Sri Lanka (CBSL) by not offering
Treasury (T) bills of 91-day maturity at yesterday's weekly T bill
primary auction prevented upward pressure on rates, CBSL statistics
showed.
Yesterday was the second week running that the weighted average yields (WAYs) of the 182 and 364-day T bills have remained unchanged. In the previous week's auction held on 27 August 2014 too, these yields remained unchanged at 6.28% and 6.30% respectively, whilst CBSL, on behalf of the Government of Sri Lanka (GoSL) rejected offers made for the 91 day maturity for the second consecutive week then, because the market was asking for higher yields than that which CBSL/GoSL was prepared to pay for this tenure.
Due to CBSL not offering 91-day maturities to the market at yesterday's auction, market demand was concentrated only on the balance two tenures on offer, that is, the 182 and 364-day tenures at that auction, as a result of which their WAYs remained unchanged at 6.28% and 6.30% respectively, week-on-week (WoW), without increasing.
These WAYs last fell at the T bill auction held a fortnight ago, that is, on 20 August,...
.with the WAYs of 182 and 364 day T bills having had fallen by a nominal two and one basis point (bp) to 6.28% and 6.30% respectively at that auction, the same rates they commanded at yesterday's T bill auction as well.
The last time that CBSL sold 91 day maturities to the market was in the weekly T bill auction held on 13 August, 2014, where its WAY fell by nine bps to 6.19%. Meanwhile the WAYs of the other two tenures on offer, that is, that of the 182 and 364 day maturities, fell by nine and 14 bps to 6.30% and 6.31% respectively at that auction.
The T bill auction of 13 August, 2014, was held two days prior to the release of CBSL's monthly monetary policy stance for that month.
At that time, certain sections of the market expected a policy rate cut when CBSL was to announce its monetary policy stance then, which however didn't take place. CBSL has for seven consecutive months (including last month) since January has left its policy rates unchanged, that is, its standing deposit facility (SDF) at 6.50% and its standing lending facility at 8.00% respectively.
CBSL is yet to announce when it will make known its monetary policy stance for the current month, that is, for September.
Market sources told Ceylon FT that with the SDF at 6.50% giving a higher yield than the current WAYs of T bills, there was no enticement for the market to invest in T bills, instead, preferring the SDF to invest their money. Nevertheless for certain statutory requirements, like maintaining capital adequacy ratios by banks, it may compel such financial institutions to invest in T bills too despite the lower returns offered.
Meanwhile, CBSL which administers such auctions on behalf of the GoSL rejected bids received for the 91 day maturity at the auction held on 20 August, 2014 too, because the market was asking for higher WAYs than that which CBSL/GoSL was prepared to pay. Selling T bills to the market is a key way that the GoSL raises money to meet its expenditure requirements. Such auctions are administered by CBSL on behalf of GoSL.
Meanwhile, the exchange rate in interbank spot trading remained unchanged at Rs 130.20 to the US dollar on low volumes in interbank spot trading for the third consecutive day at the end of yesterday's trading, market sources told Ceylon FT.
In the government securities secondary market, heavy trading was witnessed, but that had no bearing on yields, they added.
In analyzing yesterday's CBSL's "open market operations" (OMO) press release, it may be gauged that a minimum of Rs 2,617.8 million (US$ 20.12 million) was creamed off from the money market, to CBSL's accounts, on behalf of GoSL's foreign debt servicing, where the required US dollars to meet such an obligation was creamed off from CBSL's foreign reserves and not from the foreign exchange (FX) market.
This is done to avoid downward pressure on the rupee. Sri Lanka is an import dependent economy. So, if the rupee depreciates, it will hit the poor and the fixed income earner the hardest.
With average daily volumes in the FX market in the week ended 29 August 2014 at US$ 51.34 million, a sum of US$ 20.12 million is equivalent to 39.2% of the FX market, enough to cause pressure for the rupee to depreciate as per CBSL/GoSL thinking. This also reveals that Sri Lanka's FX market lacks the height, depth, length and breadth to accommodate such obligations without disturbing the rupee.
These figures are taken into account by comparing yesterday's OMO with that of the previous day. It does not take into account inflows which CBSL purchased yesterday, to infuse further liquidity into the money market, as such are not shown by the authorities, if there were such inflows.
If that was so, GoSL's foreign debt servicing costs would have been much higher than the figure of US$ 20.12 million derived for yesterday.
CBSL's book value T bill holdings, yesterday over Tuesday increased by Rs 10.8 million (0.053%) to Rs 20,518.53 million. The danger of CBSL increasing excess liquidity by buying T bills is that it may stoke demand side inflationary pressure on the economy.
Market's excess liquidity in the review period declined by Rs 2,607 million (5.11%) to Rs 48,406 million, while the weighted average rates of call money and market repo transactions remained unchanged for the eighth consecutive market day at 6.70% and 6.52% respectively, yesterday.
Yesterday was the second week running that the weighted average yields (WAYs) of the 182 and 364-day T bills have remained unchanged. In the previous week's auction held on 27 August 2014 too, these yields remained unchanged at 6.28% and 6.30% respectively, whilst CBSL, on behalf of the Government of Sri Lanka (GoSL) rejected offers made for the 91 day maturity for the second consecutive week then, because the market was asking for higher yields than that which CBSL/GoSL was prepared to pay for this tenure.
Due to CBSL not offering 91-day maturities to the market at yesterday's auction, market demand was concentrated only on the balance two tenures on offer, that is, the 182 and 364-day tenures at that auction, as a result of which their WAYs remained unchanged at 6.28% and 6.30% respectively, week-on-week (WoW), without increasing.
These WAYs last fell at the T bill auction held a fortnight ago, that is, on 20 August,...
.with the WAYs of 182 and 364 day T bills having had fallen by a nominal two and one basis point (bp) to 6.28% and 6.30% respectively at that auction, the same rates they commanded at yesterday's T bill auction as well.
The last time that CBSL sold 91 day maturities to the market was in the weekly T bill auction held on 13 August, 2014, where its WAY fell by nine bps to 6.19%. Meanwhile the WAYs of the other two tenures on offer, that is, that of the 182 and 364 day maturities, fell by nine and 14 bps to 6.30% and 6.31% respectively at that auction.
The T bill auction of 13 August, 2014, was held two days prior to the release of CBSL's monthly monetary policy stance for that month.
At that time, certain sections of the market expected a policy rate cut when CBSL was to announce its monetary policy stance then, which however didn't take place. CBSL has for seven consecutive months (including last month) since January has left its policy rates unchanged, that is, its standing deposit facility (SDF) at 6.50% and its standing lending facility at 8.00% respectively.
CBSL is yet to announce when it will make known its monetary policy stance for the current month, that is, for September.
Market sources told Ceylon FT that with the SDF at 6.50% giving a higher yield than the current WAYs of T bills, there was no enticement for the market to invest in T bills, instead, preferring the SDF to invest their money. Nevertheless for certain statutory requirements, like maintaining capital adequacy ratios by banks, it may compel such financial institutions to invest in T bills too despite the lower returns offered.
Meanwhile, CBSL which administers such auctions on behalf of the GoSL rejected bids received for the 91 day maturity at the auction held on 20 August, 2014 too, because the market was asking for higher WAYs than that which CBSL/GoSL was prepared to pay. Selling T bills to the market is a key way that the GoSL raises money to meet its expenditure requirements. Such auctions are administered by CBSL on behalf of GoSL.
Meanwhile, the exchange rate in interbank spot trading remained unchanged at Rs 130.20 to the US dollar on low volumes in interbank spot trading for the third consecutive day at the end of yesterday's trading, market sources told Ceylon FT.
In the government securities secondary market, heavy trading was witnessed, but that had no bearing on yields, they added.
In analyzing yesterday's CBSL's "open market operations" (OMO) press release, it may be gauged that a minimum of Rs 2,617.8 million (US$ 20.12 million) was creamed off from the money market, to CBSL's accounts, on behalf of GoSL's foreign debt servicing, where the required US dollars to meet such an obligation was creamed off from CBSL's foreign reserves and not from the foreign exchange (FX) market.
This is done to avoid downward pressure on the rupee. Sri Lanka is an import dependent economy. So, if the rupee depreciates, it will hit the poor and the fixed income earner the hardest.
With average daily volumes in the FX market in the week ended 29 August 2014 at US$ 51.34 million, a sum of US$ 20.12 million is equivalent to 39.2% of the FX market, enough to cause pressure for the rupee to depreciate as per CBSL/GoSL thinking. This also reveals that Sri Lanka's FX market lacks the height, depth, length and breadth to accommodate such obligations without disturbing the rupee.
These figures are taken into account by comparing yesterday's OMO with that of the previous day. It does not take into account inflows which CBSL purchased yesterday, to infuse further liquidity into the money market, as such are not shown by the authorities, if there were such inflows.
If that was so, GoSL's foreign debt servicing costs would have been much higher than the figure of US$ 20.12 million derived for yesterday.
CBSL's book value T bill holdings, yesterday over Tuesday increased by Rs 10.8 million (0.053%) to Rs 20,518.53 million. The danger of CBSL increasing excess liquidity by buying T bills is that it may stoke demand side inflationary pressure on the economy.
Market's excess liquidity in the review period declined by Rs 2,607 million (5.11%) to Rs 48,406 million, while the weighted average rates of call money and market repo transactions remained unchanged for the eighth consecutive market day at 6.70% and 6.52% respectively, yesterday.
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