Secondary market yields dip after 250-basis points policy rate cut

• Inflation drops considerably
• Foreign buying continues for 16th consecutive week 
• Rupee appreciates during the week

 By Wealth Trust Securities

The Central Bank of Sri Lanka commenced relaxing its monetary policy at its announcement on 1 June 2023, the first such move since July 2020. The 250-basis points slash saw the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) fall to 13.00% and 14.00% respectively. This led to a drop in overnight call money and repo rates to 13.97% and 14.00% respectively for the last two trading days of the week against its 16.47% and 16.50% for the first three days of the week.

The trading week ending 2 June 2023 saw secondary market bond yields decreasing subsequent to the monetary policy announcement while activity increased. The yields of the preferred maturities of 15.05.26, two 2027’s (i.e., 01.05.27 & 15.09.27) and 01.07.32 were seen decreasing to intraweek lows of 24.60%, 24.25%, 24.00% and 20.00% respectively against its opening highs of 28.50%, 26.85%, 26.75% and 23.00%.

The Colombo Consumer Price Index (CCPI; Base 2021=100) or inflation for the month of May decreased sharply to 25.2% on its point to point, when compared against its previous month’s figures of 35.2% while at the weekly bill auction, the weighted average rates decreased across the board as the total offered amount of Rs. 160 billion was fully subscribed at the 1st phase of the auction. Further an amount of Rs. 20.00 billion was raised at its phase II.

The foreign holding in rupee bonds was seen increasing by Rs. 6.13 billion for the week ending 1 June 2023 to record its 16th consecutive week of inflows totalling Rs. 141.88 billion.

The daily secondary market Treasury bond/bill transacted volumes for the first four trading days of the week averaged Rs. 49.48 billion.

In money markets, the total outstanding liquidity deficit was registered at Rs. 6.83 billion by the end of the week against its previous week’s deficit of Rs. 16.81 billion while the Central Bank of Sri Lanka (CBSL) holding of Govt. Security’s stood at Rs. 2,592.87 billion against its previous weeks of Rs. 2,628.49 billion.

USD/LKR

In the Forex market, the USD/LKR rate on spot contacts was seen appreciating during the week to close the week at Rs. 291.75/292.50 against its previous weeks closing levels of Rs. 296.00/297.50 subsequent to fluctuating within a high of Rs. 290.00 and a low of Rs. 297.50 during the week.

The daily USD/LKR average traded volume for the first four trading days of the week stood at $ 56.26 million. (References: Central Bank of Sri Lanka, Bloomberg E-Bond trading platform, Money broking companies)