Sri Lanka external accounts stabilized by $750mn bond sale: CB Governor

Sept 13, 2013 (LBO) – Sri Lanka’s external accounts will be strengthened and the balance of payments will turn into surplus after 750 million US dollars were raised by a state-run bank, Central Bank Governor Nivard Cabraal said. National Savings Bank sold 5-year bonds at 8.875 percent Friday, over 350 basis points higher than the 530 basis points paid by Bank of Ceylon, another state-run bank paid earlier in the year.

The deal attracted orders worth 2.35 billion US dollars amid jittery international bond markets.

“The rate in today’s context is a good rate,” Central Bank Governor Nivard Cabraal said.

“In the uncertainty that there that there was, a two billion dollar order book was a good sign.”

Cabraal said the money will also help shore up Sri Lanka’s foreign reserves.

“It will ensure a healthy balance of payments surplus and the external accounts will be strengthened significantly,” he said.

“And if the NSB were to sell the proceeds to the Central Bank – which they will be probably do – the reserve position will be strengthened materially.”

Sri Lanka’s rupee which came under pressure from liquidity injections followed by weak sentiment but stabilized two days earlier with the spot market resuming activity.

Analysts have warned that the central bank’s recent policy of ‘exchange rate flexibility’ while allowing liquidity generated from dollar purchases to remain in interbank markets tends to put downward pressure on the currency.

When liquidity is generated by central bank dollar purchases, the monetary authority has to actively intervene with unsterilized sales (or withdraw liquidity by selling down domestic assets in its portfolio) to avoid the currency plunging.