Policy rates slashed to lowest levels in twenty years

• Money market rates dip by 100 basis points
• Bond yields decrease subsequent to policy cut

By Wealth Trust Securities

The Central Bank of Sri Lanka continued its relaxing monitory policy stance at its announcement yesterday, cutting rates by 100 basis points to record its lowest corridor levels seen since the year 2000. Its Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) stand at 4.50% and 5.50% respectively now.

This led to a drop in the weighted average rates on overnight call money and repo, recording 4.52% and 4.54% respectively yesterday against its previous day of 5.51% and 5.54%. The DOD (Domestic Operations Department) of Central Bank continued to refrain from conducting any auction yesterday with the overnight net liquidity surplus in the system remaining at Rs.160.92 billion

Secondary bond market yields were seen decreasing yesterday mainly during the early part of the day subsequent to the monetary policy announcement as activity was witnessed across the yields curve. The yields of the liquid maturities of 15.12.22, 15.01.23, 15.09.24, 01.05.25, 01.02.26 and 15.10.27 were seen decreasing to intraday lows of 5.50%, 5.60%, 6.27%, 6.43%, 6.63% and 6.70% respectively against its previous day’s closing levels of  5.75/78, 5.85/88, 6.43/48, 6.58/65, 6.68/75 and 6.95/00. However, profit taking at these levels curtailed any further downward movement with yields closing marginally higher. In addition, maturities of 01.10.22, 2023s (i.e. 15.05.23, 15.07.23, 01.09.23 & 15.12.23), 01.01.24, 2025s (i.e. 01.08.25 & 15.10.25), 15.01.27 and 2028s (i.e. 01.05.28 & 01.07.28) were traded at levels of 5.60%, 5.85% to 6.03%, 6.20% to 6.30%, 6.55%, 6.80% to 6.84% and 6.85% to 6.90% respectively as well. In secondary bills, August 2020, September 2020, January 2021 and July 2021 maturities changed hands at levels of 4.75%, 5.00%, 4.90% and 5.10% to 5.22% respectively.

The total secondary market Treasury bond/bill transacted volume for 8 July was Rs. 18.4 billion.  

Rupee dips marginally

In Forex markets, the USD/LKR on spot contracts depreciated marginally yesterday to close the day at Rs. 185.80/95 yesterday in comparison to its previous day’s closing of Rs. 185.75/85 on the back of buying interest by Banks.

The total USD/LKR traded volume for 8 July was $ 93.91 million.  

 (References: Central Bank of Sri Lanka, Bloomberg E-Bond trading platform, Money broking companies)