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Good For Low Rate Regime

Jan 29, 2011 2:18:25 PM - thesundayleader.lk
  • No Investments

With the market throwing up an excess liquidity of more than Rs. 120 billion day, day in day out, and signs being that investments have not picked up, are all favourable indicators for the prevalence of a low interest regime in the economy, a market source told this reporter.
The market has no option other than to park this excess liquidity with the Central Bank of Sri Lanka’s overnight repo window, earning them a low 7% interest.
Meanwhile Government’s agents allegedly intervened at Thursday’s Treasury (T) Bond primary auction in an attempt to bring rates down in an economy beset by inflationary pressure caused by rising food prices in the aftermath of the recent floods. Department of Census and Statistics will release this month’s inflationary data tomorrow.
T Bonds of 2017 maturity commanded a weighted average yield (WAY) of 8.75% at the auction because of this market distortion, whereas in the market, the maturity closest to that yield, namely T Bonds of 2015 maturity were trading at the 8.85% levels, an obvious indication that the Government wants rates to come down, the source said.
In Sri Lanka, the behaviour of the Bond market, regardless of whether it’s the primary auction or in the secondary market, is such, that WAYs, in tandem with the tenure of such instruments, increases, with the contrary not taking place.
There were no Bonds of 2017 tenure trading in the secondary market, he said.
Government’s agents in the market are the EPF, ETF and the state banks.
He however said that in the case of the longer tenure up for sale at this auction, ie T Bonds of 2020 maturity, certain insurance companies evinced interest in investing in the same. The WAY fetched for that tenure was 9.15%.
Howbeit the values of the two tenures offered at this auction were a mere Rs. 750 million each.
Meanwhile in the foreign exchange market, Bank of Ceylon last week was busy collecting greenbacks, ostensibly to settle a Government import bill which brought in pressure for the US dollar to rise.
The dollar in the first four working days of last week had risen by 15 Sri Lanka cents to be quoted at Rs. 111.05 in spot, inter-bank trading, with the greenback operating within a band of Rs. 111/20 at the upper limit and at Rs. 110/60 at the lower limit, allegedly set forth by the CBSL for the market to trade, that would preclude any necessity for it to intervene, if the greenback operates within those parameters.