CB to address overnight liquidity shortage

Friday, 5 October 2012 00:01 - - {{hitsCtrl.values.hits}}

Plans to inject term repo for first time since 2009

In a move that could add further momentum to the already bullish Treasury bill and bond market, the Central Bank has announced plans to inject liquidity into the system on a term basis through its reverse repo auctions conducted by its Open Market Operations (OMO) Department for the first time since May 2009, according to Wealth Trust Securities.

It said an amount of Rs. 6 billion was offered yesterday for a period of one month. However, all bids were rejected at this auction due to the rates submitted being too high, according to market sources, and it was widely expected that this auction would be conducted once again today.

Overnight liquidity reflected somewhat of a rebound while the net deficit dropped to Rs. 604 million with Rs 3.75 billion being deposited at Central Bank’s repo window rate of 7.75% and Rs. 4.360 billion being accessed from its reverse repo window rate of 9.75%. Overnight call money and repo rates remain steady to average 10.54% and 9.65% respectively.

Wealth Trust said the downward movement in secondary market Treasury bond and bill yields continued yesterday as well with the three-year and five-year maturities being the most active counters.

Its yields open the day at intraday highs of 12.22% and 12.40% respectively and dipped by around five basis points towards the latter part of the day. Furthermore the six-year maturity was seen being traded heavily as well within a range of 12.55%-12.60%.

Buying pressure led by imported demand for contract value on 5 October 2012 saw the rupee dip above the Rs. 130 level after a lapse of four days to hit an intraday low of Rs. 130.15 yesterday.

However, selling on forward dollar contracts coupled with fresh dollar inflows into the system at these levels saw the rupee rebound as much as Re. 1 towards the latter part of the day to close the day at Rs. 129.

The total USD/LKR traded volume for the previous day, 3 October, was at US$ 55.64 million. Given are some forward dollar rates that prevailed in the market: one month – 130.30; three months – 132.80; and six months – 135.75.