The season sees first policy rate cut in fourteen months

A parallel shift downwards of the yield curve witnessed during the week

By Wealth Trust Securities
The Sinhala/Tamil New Year was welcomed with the surprise announcement by the Central Bank of Sri Lanka that it had slashed policy rates by 50 basis points. Accordingly, at its April monitory policy announcement it was seen reducing its Standing Deposit Facility Rate (SDFR) to 6.00% and its Standing Lending Facility Rate (SLFR) to 7.50% with effect from 15 April 2015.
In line with this, considerable buying interest in secondary bond markets saw yields on the liquid maturities of 15.05.2017, 01.06.2018, 15.09.2019, 01.06.2020, 01.08.2021 and 01.09.2023 dip to weekly lows of 7.40%, 8.10%, 8.10%, 8.70%, 8.85% and 9.20% respectively during the week ending 17 April to reflect a parallel shift downwards of the overall yield curve on a week-on-week basis.
However, profit-taking at these levels curtailed any further downward movement.  Furthermore, weighted averages at the weekly Treasury bill auction dipped by 30 basis points across all maturities with a total of Rs. 25.5 billion been accepted against its initial total offered amount of Rs. 24 billion. The 364-day bill dominated the auction as it represented 68% of the total accepted volume. In addition, continued buying interest on short tenure maturities saw duration centering the 9-1 and 182-day bills change hands within the range of 6.15% to 6.25% and 6.45% to 6.55% respectively post auction.
Liquidity increases to a three month high
In money markets, following the policy rate reduction, overnight call money and repo rates were seen decreasing during the week ending 17 April to average 6.20% and 6.23% respectively against its previous week averages of 6.70% and 6.62%. Surplus liquidity was seen increasing to a three-month high of Rs. 108.61 billion by Friday and averaged Rs. 95.46 billion for the week.
Rupee on forward contracts dips during the week
The rupee on one week and two week forward contracts was seen losing ground during the week to close the week at Rs. 133.60/80 and Rs. 133.90/95 respectively against its previous weeks closing of Rs. 133.35/45 and Rs. 133.55/65 on the back of diminishing remittances and importer led demand.
Some of the forward dollar rates that prevailed in the market were 1 month – 134.15; 3 months – 135.55 and 6 months – 136.82.