Policy rates held steady for 11th consecutive month

• Bond yields decline marginally during the week
• Foreign holding on rupee bonds down for a second consecutive week

By Wealth Trust Securities The Central Bank of Sri Lanka was seen holding policy rates steady for a eleventh consecutive month at its policy announcement for December as credit obtained from the private sector continued its increasing trend for a third consecutive month and as leading indicators show strong signs of high economic growth during the second half of 2014. Meanwhile during the week ending 12 December, secondary market bond yields were seen decreasing marginally, driven by the outcome of the weekly Treasury bill auction at where weighted averages were seen declining by one basis point each on the 182 day and 364 day maturities to 5.83% and 5.98% respectively. The limited amount of activity centered the two 2018 (i.e.01.04.2018 & 15.08.2018), the 01.07.2019 and the 01.07.2022 maturities as its yields were seen dipping to intraweek lows 7.02%, 7.14%, 7.17% and 8.07% respectively against its highs of 7.15%, 7.25%, 7.30% and 8.30% with most market participants seen on the sidelines due to the prevailing bearish sentiment. Furthermore, the foreign holding in government securities was seen declining for a second consecutive week by a further Rs. 3.7 billion accumulating to a net outflow of Rs. 52.7 billion from its peak level of Rs. 507.2 billion recorded in August 2014. The Open Market Operations (OMO) department of Central Bank was seen mopping up liquidity continuously during the week ending 12 December from durations ranging from two days to seventy seven days at weighted averages within 5.91% to 6.12%. Liquidity was seen averaging Rs. 22.63 billion for the week in comparison to its previous week’s average of 38.25 billion as call money and repo averaged 5.95% and 5.47% respectively.   Rupee remains steady week on week Inward remittances and export conversions ahead of the festive season was seen negating importer demand as the rupee on spot next-next contracts was seen closing the week steady at Rs 131.98/132.03 in the absence of active trading on spot and spot-next contracts. The daily USD/LKR average traded volume for the first four days of the week stood at $ 32.46 million. Some of the forward dollar rates that prevailed in the market were 1 month – 132.45; 3 months – 133.50 and 6 months – 134.78.