Secondary market yields jump after policy rate decisions

• Policy rates increased by 50 basis points; SRR by 200 basis points
• Money Market Liquidity remains at a deficit

By Wealth Trust Securities

The Central Bank of Sri Lanka tightened its monitory policy stance at its announcement yesterday, the first policy change since July 2020. The 50 basis points increase saw the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) advance to 5.00% and 6.00% respectively. 

Furthermore, it increased the Statutory Reserve Requirement (SRR) rate applicable for all rupee deposits at Licensed Commercial Banks by 200 basis points to 4.00% from 2.00%, effective 1 September.

This intern led to a steep increase in secondary market bond yields on the back of a sizeable increase in traded volumes. Yields on the liquid maturities of 15.11.23 and 01.12.24 were seen hitting highs of 6.90% and 8.02% respectively against its previous day’s closing levels of 7.35/45 and 7.20/21. In addition, 15.07.23 maturity changed hands at level of 6.43%. 

The total secondary market Treasury bond/bill transacted volume for 18 August was Rs. 18.64 billion.   

In money markets, the base rate change saw the weighted average rates on overnight call money and repo increase to 5.73% and 5.72% respectively against its previous days 5.09% each. The net liquidity shortage stood Rs. 22.11 billion yesterday with an amount of Rs. 110.05 billion been withdrawn from Central Banks SLFR of 6.00% against an amount of Rs. 87.95 billion deposited at Central Banks SDFR of 5.00%. 

USD/LKR   

In Forex markets, the overall market continued to remain inactive yesterday.

The total USD/LKR traded volume for 18 August was $ 20.00 million.   

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