Sri Lanka rates up amid tight liquidity

Apr 05, 2012 (LBO) – Liquidity tightened in Sri Lanka’s money markets Thursday a day after bond yields spiked amid some foreign selling a day earlier ahead with a monetary policy announcement due later in the day. Call money was quoted as 9.25/50 percent at opening percent and gilt-backed repos were quoted 8.25/45 dealers said.

Liquidity in money markets has dried up over the past three days and market participants borrowed 1.29 billion rupees from the central bank’s standing facility at 9.0 percent Wednesday.

Liquidity dries up when the Central Bank sells foreign exchange or when money demand in the economy picks up. In April there is extra demand for cash. Usually April also sees dollar inflows as exporters convert money to pay festival advances to workers.

Excess liquidity which was building up amid non-sterilized purchases of foreign exchange by the Central Bank fell from 26 billion on March 29 to 3.4 billion rupees on April 04 with 1.3 billion rupees borrowed from the reverse repo window.

On Wednesday a 3-year bond maturing on 15.07.15 traded as high as 12.10 percent, up from 11.65 percent earlier in the week.

On Monday the International Monetary Fund said it was giving 427 million US dollars to shore up Sri Lanka’s reserves, following better policy. The rupee has gained from a lows of around 131 to the US dollar to 125 to 126 levels.

A 4-year bond maturing on 01 August 2016 traded as high as 12.20 percent from 11.85 percent earlier. Dealers said several foreign banks were seen selling bonds.

Three month repos were quoted around 11.3 percent dealers said.