Monetary policy rates change for first time in five announcements

• SRR cut by 150 basis points
• Weekly weighted averages jump once again

By Wealth Trust Securities

The Central Bank of Sri Lanka (CBSL) was seen changing its policy rates for the first time in five announcements yesterday. Policy rates were increased by 75 basis points and 50 basis points on its Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) to 8% and 9%, respectively, narrowing down the corridor to 1% from its previous 1.25%. The previous change was at its April announcement where its Standing Lending Facility Rate (SLFR) was reduced by 25 basis points to 8.50%.

However, in a boost to the prevailing liquidity shortfall in the system, the CBSL was seen reducing its Statutory Reserve Ratio (SRR) applicable for all licensed commercial banks by 150 basis points to 6% from its previous 7.50%. This is expected to release a substantial amount of rupee liquidity to the banking system according to CBSL.

At yesterday’s weekly Treasury bill auction, weighted averages increased for a third consecutive week with the 91-day bill increasing by 42 basis points to 10.07%, recording a weighted average above 10% for the first time since 19 December 2012 while the 364-day bill increased by 36 basis points to 11.25%, recording a weighted average above 11% for the first time since 26 April 2017. Only an amount of Rs.9.85 billion was accepted in total against its total offered amount of Rs.14 billion while all bids received for the 182-day bill were rejected. The total bids received to offer ratio was seen increasing to a three-week high of 2.74:1.

Activity in the secondary bond market was seen picking up yesterday, mainly on the 15.06.27 and 01.05.29 maturities within a tight range. The 15.06.27 was seen changing hands within the range of 12.24% to 12.30% while the 01.05.29 changed hands within the range of 12.25% to 12.40%. On the short end of the curve, the 01.05.20 maturity was seen changing hands within the range of 11.45% to 11.50% while the 364-day bill was traded from 11.20% to 11.15%.

The total secondary market Treasury bond/bill transacted volumes for 13 November was Rs.0.64 billion.In the money market, the base rate increase resulted in overnight call money and repo rates increasing yesterday to average 8.97% and 8.98%, respectively, as against its previous day’s average of 8.49% and 8.50%. The OMO Department of the Central Bank infused liquidity by way of an overnight and a two-day term repo auction for successful amounts of Rs.31.45 billion and Rs.18.59 billion, respectively, at weighted average yields of 8.74% and 8.95% as the net liquidity shortage in the system stood at a high of Rs.82.98 billion yesterday.

Rupee continues its slide

The downward trend in the rupee value continued as the USD/LKR rate on spot contracts were seen closing the day at Rs.176.45/55 against its previous day’s closing levels of Rs.176.15/25 on the back of continued buying interest from banks. The total USD/LKR traded volume for 13 November was $ 60.75 million.Some of the forward USD/LKR rates that prevailed in the market were 1 month – 177.50/80, 3 months – 179.65, and 6 months – 182.60.