Sri Lanka rates spike as markets tumble

Sept 18, 2008 (LBO) – Sri Lanka’s overnight money rates spiked to 18.75 percent and banks borrowed at a penal 19 percent from the central bank in a day that saw turmoil in global markets and stocks plunged 2.5 percent. A popular bond among foreign investors maturing in April 2012, traded close to 17.95/18.05 levels, which was about 40 basis points up from the beginning of the week, dealers said.

Foreign investors are estimated to hold about 490 million dollars of bonds and 150 million dollars worth short term treasury bills.

In equity markets, blue chips were battered as foreign investors sold out and Sri Lanka Telecom overtook Dialog Telecom to become the largest capitalized stock in the country.

Dialog Telekom closed down 9.76 percent or one rupee at 9.25 rupees.

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Sri Lanka’s central bank is running a tight monetary system after inflation spiked to 29.9 percent in April, and access to its 12.0 percent discount window has been restricted to three times a month.

The central bank injected two billion rupees at 12.0 percent to the markets but some participants went to the penal discount window to borrow at 19.0 percent.

“Some players have been building up portfolios as rates fell in recent weeks, and they had to borrow from the window earlier as well,” a dealer said.

“Foreign banks in Colombo who usually represent foreign buyers were selling small volumes of bonds.”

Dealers said tight liquidity in the system made it difficult to push large volumes and yields also rose.

A bond maturing in July 2012 which was auctioned at around 17.48 percent on Tuesday traded in the secondary market at 17.75 percent Thursday, dealers said.