Bourse ends near 2-week low ahead of CB policy review

Tuesday, 26 April 2016 00:39 - - {{hitsCtrl.values.hits}}

Reuters: Shares fell to a near two-week low on Monday as cautious investors waited for cues from the Central Bank’s decision on interest rates and talks on a loan deal with the International Monetary Fund.

The Central Bank’s April monetary policy announcement is scheduled for 11:30 GMT on Tuesday, and expectations are that it would keep key interest rates steady, a Reuters poll showed.

However, a surprise hike is not ruled out as five out of eleven analysts expect the Central Bank to raise the policy rate to keep government borrowing in check through tighter financing conditions.

Rupee forwards firmer on bank dollar sales

Reuters: Five-day rupee forwards edged up on Monday as dollar sales by a foreign bank outpaced importer demand, while some investors awaited direction after the finance ministry told exporters to bring earnings back home, dealers said.

The market is also waiting for the Central Bank’s April monetary policy announcement scheduled for 11:30 GMT on Tuesday, when it is expected to keep key interest rates steady, a Reuters poll showed.

However, a surprise hike is not ruled out as five out of 11 analysts expect the Central Bank to raise policy rates to keep government borrowing in check through tighter financing conditions.

The five-day forwards, which are known as spot next and act as a proxy for the spot currency, ended at 146.40/60 per dollar, compared with Friday’s close of 146.50/60.

Finance Minister Ravi Karunanayake on Friday ordered exporters to repatriate export earnings received on or after 1 April to improve foreign exchange inflows to the country.

“The government’s order came after repeated failure by exporters to bring back their earnings,” said a currency dealer, requesting not to be named. “First, a few exporters said they were waiting to see the rupee depreciate to 135 per dollar. Then, they said 140, and later 145. But they never brought the dollars despite the Central Bank allowing depreciation.”

A few dealers said the move was negative because it could dent investor sentiment.

“Forcing exporters to bring in their earnings is against the good governance principles of the government,” an exporter said on condition of anonymity.

“The government should have consulted all exporters instead of discussing it with only top 20 exporters.”

Central Bank Governor Arjuna Mahendran on 12 April said the monetary authority has been intervening to smoothen volatility in an illiquid market.

The spot rupee, which has barely seen any trading since 27 January, was not actively traded on Monday as well.

The rupee has been under pressure as foreign investors have sold government securities amid the country’s economic woes, but they net bought bonds worth Rs. 11.7 billion in the last four weeks till 20 April, Central Bank data showed.

The Central Bank has twice tightened rates since December to ease the pressure on a fragile rupee.

The benchmark stock index ended 0.67% or 43.12 points weaker at 6,379.53, its lowest close since 12 April.

“The selling pressure was there and we expect it to continue over the week due to the high interest rates and also the poor economic conditions,” said First Capital Equities Ltd Head of Research Dimantha Mathew.

A visiting IMF mission said it expected to complete negotiations with Sri Lanka for a three-year loan program in the next two weeks.

Foreign investors were net buyers of Rs. 102.2 million ($702,646.96) worth of equities on Monday, but have been net sellers of Rs. 3.04 billion so far this year.

Turnover stood at Rs. 437.1 million, less than this year’s daily average of around Rs. 776.3 million.

Shares in John Keells Holdings Plc fell 2%, while those in Commercial Bank of Ceylon Plc dropped 1.50%