Sri Lanka overnight rates spike to new high

Dec 21, 2011 (LBO) – Sri Lanka’s overnight money rates spiked over 9.75 percent and gilt backed repurchase deals touched 8.45 percent Wednesday amid defence of a dollar peg and festival demand for cash, dealers said. But in December there is also a seasonal demand of cash during the Christmas and New Year holiday season.

Sri Lanka has a policy rate of 8.50 percent to inject money and the Central Bank announced a 12 billion rupee cash auction cool markets.

On Tuesday the Central Bank injected 7.0 billion rupees from a cash auction at an average yield of 7.94 percent, up from 7.76 percent a day earlier.

Money rates rose as much as around 9.87 percent on Wednesday from 9.73 percent a day earlier, dealer said.

The steep rise in call money which are loaned ‘clean’ is partly due small banks which do not have enough liquid assets to borrow cheaper in the repo market, dealers said.

On Tuesday the highest repo rate rose to 8.45 percent from 8.0 percent a day earlier and the weighted average yield rose to 8.29 percent from 7.84 percent.

Sri Lanka’s money markets have been running out of cash due to steady sales of dollars by authorities from around August 2011 to defend a soft-peg with the US dollar in the spot market.