Sri Lanka’s borrowing costs go up, speculation of a possible rate hike ahead of polls

Chief Regulatory Officer at CSE Renuke Wijayawardhane presenting the listing certificate to Executive Chairperson at Renuka Hotels Shibani Thambiayah

Sri Lanka’s borrowing costs went up by about 10-15 basis points at this week’s treasury bill auction, leaving room for speculation that the Central Bank may hike its benchmark interest rates on Wednesday. Sri Lanka’s borrowing costs went up by about 10-15 basis points at this week’s treasury bill auction, leaving room for speculation that the Central Bank may hike its benchmark interest rates on Wednesday. The island nation sold Rs. 7.4 billion of three-months treasury bills at a yield of 10.02 percent, sharply up from 9.81 percent in an auction on Nov., 14 the Central Bank said in a statement today.

Six month treasury notes were sold at 10.21 percent (from 9.95 percent a week earlier) and yields for one-month bills were up to 10.29 percent (from 10.04 percent the previous week).



Maturity

 



Bids



 Received



(Rs.

m
n.)



Amount



Accepted



(Rs.

m
n.)



Weighted Average  Yield



Percent per annum



After Tax


 



 



 



This

week



Last

week

3- months


9,116


7,447


10.02


9.81

6 – months


2,093


1,832


10.21


9.95

12 – months

5,437

2,042


 10.29


 10.04



 Total



 16,646



 11,321



 10.10



 9.87

Market players were expecting yields to rise this week as treasury bill rates are far below bond yields.

Cooking Numbers

“Markets were also rattled by Treasury Secretary’s comments last week that he had no faith in Central Bank data,” said a primary dealer.

Treasury Secretary P B Jayasundara told a post-budget discussion that he has little faith in Central Bank numbers.

“I was at the Central Bank Public Finance Department and wrote these reports for 20 years. It is the same thing again and again. For us to show that we are smart we make something. Hon. Ronnie de Mel (Former Finance Minister) used to say ‘a little bit of massaging is OK’. If we say 5.5 he would say 6.0 percent,” quipped Jayasundera.

Rate Hike?

Sri Lanka’s Central Bank is due to release its monetary policy announcement a day ahead of a crucial presidential poll on Thursday.

Most analysts were not expect the bank to change its policy rates. But a sudden jump in bill rates, could be an indication that a hike was imminent.

“With today’s auction rates, I expect yields to go up between 25-50 basis points. There’s still room for rates to go up, because money supply is still high,” another bond dealer said.

Presently, the repurchase rate, which drains money from the banking system, stands at 8.50 percent and the reverse repurchase rate at 10.00 percent.

Benchmark rates were last revised upwards in September by 25 basis points.

Policymakers have raised interest rates three times this year to reign in galloping inflation spurred on by higher global oil prices.

-Mel Gunasekera: mel@vanguardlk.com