Stock market falls ahead of policy meeting

Reuters:  Sri Lankan shares fell on Monday from a more than three-week closing high hit in the previous session ahead of a Central Bank policy meeting, while concerns over economic growth and rising interest rates also dented sentiment.

The Central Bank of Sri Lanka is expected to raise its key interest rates by at least by 25 basis points on Tuesday, a Thomson Reuters poll showed, as it seeks to reduce downward pressure on the fragile local currency.

The benchmark share index ended 0.5%, or 30.40 points, weaker at 6,062.05, after posting its highest close since 1 March on Thursday. Sri Lankan markets were closed on Friday for a local holiday.

Foreign investors sold a net Rs. 58.3 million ($396,060) worth of shares on Monday, extending their net selling so far this year to Rs. 2.12 billion.

“Investors are very cautious and are waiting for the outcome of the policy meeting,” said Richard Pieris Securities Ltd Chief Ooperating Oofficer  Reshan Kurukulasuriya.

Sri Lanka’s economy is expected to expand 5.3% in 2016, government data showed last week, but analysts say tight monetary and fiscal policies may curb growth.

Rising yields on treasury bills following an unexpected interest rate hike by the Central Bank in mid-February, have spurred investor appetite for fixed interest rate-bearing assets, dealers said.

Yields on t-bills are hovering near 29-month highs after jumping between 116 and 195 basis points since the central bank raised key policy rates by 50 basis points from a record low on 19 February.

Lion Brewery Ceylon Plc shares fell 8.20% on Monday, while conglomerate John Keells Holdings Plc dropped 0.99%.

Turnover was Rs. 397.4 million, a little more than half of this year’s daily average of Rs. 784 million.