Rate Spike

Dec 24, 2008 (LBO) – Sri Lanka’s rates spiked, despite excess liquidity and uncertainty heightened amid problems at a Ceylinco group company in a market that was already hurt by unpaid inter bank hedging contracts, dealers said. On Wednesday market excess liquidity rose to 10.6 billion rupees, though the central bank had lent 2.9 billion rupees through its discount window.

On Tuesday the inter bank market was in excess by 5.8 billion rupees, but borrowings from Central Bank rose to 1.4 billion rupees indicating that some players had inadequate limits with counterparties.

Seasonal liquidity needs during the Christmas holiday season also draw some of cash out of the system. On Wednesday the Central Bank did not announce a repo auction to mop up excess liquidity, dealers said.

In forex markets, the spot dollar opened around 112.95/113.10 rupees and later strengthened to 112.75/85 rupees, dealers said.

Updated with Wednesday discount window total. Bonds maturing in June 2009 which were trading at 18.75/19.00 percent two days ago spiked to 20.00 percent as a private name unwound positions in a search for liquidity, dealers said.

At this week’s bill auction, held a day early, 6-month bills were at 18.