By Wealth Trust Securities

The primary auction for Treasury bonds was seen attracting over Rs.7 billion in successful bids at its auction held yesterday following the rejection of all bids at its previous week’s auctions. The weighted averages reflected an increase as the 4.01 year maturity 01.05.2020 and the 07.09 year maturity of 01.01.2024 registered yields of 11.87% and 12.26% respectively in comparison to weighted averages of 11.42% and 11.78% recorded on maturities of 01.08.2021 and 01.09.2023 at its last successful primary auction conducted on 29 February. However, all bids for the 01.03 year maturity of 15.06.2017 were rejected.

In secondary market bonds, yields were seen increasing marginally following the outcome of the auction on the back of average volumes changing hands. The 2018 maturities (01.04.18, 15.07.18 &15.08.18) were seen changing hands within the range of 11.05% to 11.25% followed by the  01.07.19, 01.08.21 and 01.09.23 within the range of 11.40% to 11.50%, 11.95% to 12.05% and 12.10% to 12.11% respectively. 

Meanwhile in money markets, liquidity was seen reversing to a net deficit once again to record Rs.8 billion. A 7 year high volume of Rs.16.78 billion was accessed from the Central Bank’s Standard Lending Facility Rate (SLFR) while an amount of Rs.8.78 billion was deposited at its Standing Deposit Facility Rate (SDFR). This intern saw overnight call money and Repo rates increasing further to average 7.89% and 7.76% respectively.

 Rupee depreciates 

 The rupee on one week forward contracts was seen depreciating to close the day at Rs.145.50/70 against its previous day’s closing levels of 145.35/45 on the back of importer demand. The total USD/LKR traded volume for 16 March was US $ 88.00 million. 

Some of the forward USD/LKR rates that prevailed in the market were 1 Month - 146.25/35; 3 Months - 147.80/90 and 6 Months - 149.95/05.

Rupee forwards ease on importer dollar demand

Reuters: Rupee forwards ended weaker on Thursday on importer dollar demand amid growing uncertainty after the announcement of new tax hikes, dealers said.

One-week rupee forwards, which act as a proxy for the spot currency, ended at 145.55/65 per dollar compared with Wednesday’s close of 145.45/55.

Spot next ended at 145.45/55 per dollar, weaker from Wednesday’s close of 145.30/35.

The spot did not trade below 143.90, seen as the Central Bank’s desired level.

Analysts said the rupee would face downward pressure pending any positive news. S&P revised its outlook on Sri Lanka’s “B-plus” sovereign credit rating to negative on 10 March, a week after Fitch downgraded its rating by a notch to “B-plus” with a negative outlook.

Dealers also said policy uncertainty is deepening with the new taxes, and the capital gains tax may discourage foreign investors.

Sri Lanka will raise value added tax (VAT) and reintroduce capital gains tax to break out of a debt trap, ahead of talks on a $1.5-billion loan it is seeking from the IMF.

The downgrade will be of concern to international investors and market players, analysts said, adding it would push up the cost of government borrowings in the international market, putting pressure on the rupee.

Foreign investors sold Rs. 20.6 billion ($142.27 million) worth of government securities in the week ended 9 March, data from the Central Bank showed, taking the total offloaded since 30 December to Rs. 56.6 billion.

Commercial banks parked Rs. 8.781 billion of surplus liquidity on Thursday, using the Central Bank’s deposit facility at 6.50 %, while they borrowed Rs. 16.788 billion using the Central Bank’s lending facility at 8.00 %, official data showed.

The Central Bank’s net holding in government securities increased by Rs. 8.762 billion, data showed.