Rupee floated to historically new levels

• Primary and secondary market Treasury yields continue to increase
• Parallel shift upward of the yield curve for a third consecutive week

By Wealth Trust Securities

The Central Bank of Sri Lanka (CBSL) was seen permitting the USD/LKR rate to be driven by market forces or termed as a free float from Friday 4 September. In line with this, the USD/LKR rate on spot contracts was seen dipping to a historically new low of Rs. 139.00 before bouncing back marginally to close the day at Rs. 137.50/75. This was against its weeks opening level of Rs. 134.30. 

The upward trend in primary market weighted averages, the prevailing tight liquidity condition in money markets coupled with the devaluation of the rupee led to secondary market bond yields increasing to reflect a parallel shift upward for a third consecutive week. Selling interest was witnessed on the liquid maturities of 15.05.2017, 01.06.2018, 01.05.2020, 01.08.2021, 01.09.2023, 01.08.2025 and 01.06.2026 to weekly highs of 8.25%, 8.95%, 9.80%, 9.95%, 10.30%, 10.50% and 10.66% respectively against its weeks opening lows of 7.80%, 8.31%, 9.37%, 9.65%, 10.00%, 10.35% and 10.45%. 

Meanwhile in secondary bill markets, October 2015 and Feb 2016 maturities were seen changing hands at levels of 6.75% to 6.85% and 6.95% to 7.15% respectively during the week ending 4 September. 

Meanwhile in money markets, overnight call money and repo rates increased during the week ending 4 September, to average 6.32% and 6.41% respectively as net surplus liquidity in the market was seen fluctuating from a weekly low of Rs. 25.27 billion to a high of Rs. 51.10 billion. The Open Market Operations (OMO) Department of Central Bank was seen infusing liquidity twice during the week by way of overnight reverse repo auctions at weighted averages of 6.25% and 6.30%.