Rationalised access to the Standing Deposit Facility sees bond yields plummeting

Wednesday, 24 September 2014 00:02 -     - {{hitsCtrl.values.hits}}

By Wealth Trust Securities Rationalised or limited access to Central Bank of Sri Lanka’s (CBSL) Standing Deposit Facility (SDF) window of 6.50%, with effect from 23 September saw secondary market bond yields plummet yesterday as considerable buying interest was witnessed. The move announced at its monthly monitory policy announcement for the month of September yesterday, will see access limited to OMO (Open Market Operations) participants to three times a calendar month to its SDF widow of 6.50% and any deposits exceeding three times will be accepted at a reduced interest rate of 5.00% per annum. In addition, the daily auction facility will be suspended with effect from 23 September as well until further notice. In line with this, buying interest across the yield curve saw yields dip to lows of 6.60% and 6.65% on the two 2018s (i.e. 1 April 2018 and 15 August 2018), 6.65% and 6.85% on the two 2019s (i.e. 1 July 2019 and 15 September 2019), 7.22% on the 1 May 2021, 7.38% on the 1 July 2022, 7.80% on the 1 January 2024 and 8.90% on the 1 May 2029. Meanwhile, buying pressure in secondary bill markets saw November 2014 bills trade within the range of 5.80% to 5.90% while the 364 day bill was quoted at levels of 5.90% to 6.05%. Driven by the outcome of the monitory policy announcement, overnight call money and repo rates tumbled yesterday as its weighted averages dipped to 6.35% and 6.30% respectively with the total surplus volume of Rs. 40.68 billion being deposited at its restricted Standing Deposit Facility Rate (SDFR) of 6.50%. Rupee continues to dip marginally    In Forex markets, importer demand saw tom contracts dip to a daily low of Rs. 130.33 yesterday which in turn saw spot contracts dip as well to be quoted at levels of Rs. 130.32/36. The total USD/LKR traded volume for 22 September was at $ 88.75 million. Some of the forward dollar rates that prevailed in the market were: one month – 130.74; three months – 131.32; and six months – 132.22.

 Bourse edges up after policy rate decision

Reuters: Stocks rose for the sixth straight session on Tuesday to touch their highest in more than three years after the Central Bank effectively reduced its standing deposit facility rate to boost credit and economic growth. Before the market opened, the central bank announced moves to make commercial banks lower their interest rates and increase lending to support an economy expected to grow 7.8% this year, while keeping its own policy lending rate unchanged. The main stock index ended up 0.06%, or 4.23 points, at 7,260.64, its highest closing level since 9 June 2011. “We expect a surge in activity due to declining interest rates,” said Hussain Gani, Deputy CEO at Softlogic Stockbrokers. “I think there will be demand for fundamentally sound shares and we see an increase in buying using margin credit.” Stockbrokers said they expect the index to gain further, fuelled by the indirect rate cut. The Central Bank also cut its year-end inflation projection to 3-4% from 4-5% due to a cut in energy prices on 16 September. Sri Lanka is aiming for a higher economic growth of 8.2% and a lower fiscal deficit target of 4.4% of Gross Domestic Product next year, a Government document showed last week. The stock index has gained 22.8% so far this year. The bourse has been in an overbought region since July. The Relative Strength Index, a momentum indicator tracked by chartists, rose to 85.616 on Tuesday compared with Monday’s 84.729, Thomson Reuters data showed. Shares of Commercial Leasing and Finance Plc, which led the overall gains, rose 4.35% to Rs. 4.80, while Bukit Darah Plc gained 3.54% to Rs. 735.1. Sri Lanka Telecom Plc added 1.92% to close at Rs. 53.20. The day’s turnover was Rs. 2.18 billion ($ 16.7 million), well above this year’s daily average of over Rs. 1.28 billion. Foreign investors were net sellers for the first time in six sessions. They sold Rs. 305.33 million worth of shares on Tuesday, but have been net buyers of Rs. 11.24 billion in shares so far this year.

 Rupee ends near 4-month low on importer dollar demand

Reuters: The rupee ended slightly weaker on Tuesday at a near four-month low on importer dollar demand after the Central Bank placed certain curbs on the use of its standing deposit facility to boost credit and economic growth. The Central Bank before the market opened on Tuesday kept its key policy rates steady, but limited commercial banks’ access to its repurchase or standing deposit facility, a move analysts see as an effective rate cut. The spot currency ended at 130.35/38 per dollar, its lowest close since 3 June and weaker from Monday’s close of 130.30/35. Dealers said the interbank money market rates dropped by 50 basis points after the Central Bank’s move. The call money rate fell to 6.25% from Monday’s 6.75 % repo rate to 6% from Monday’s 6.50%, they said. Dealers also said the rupee premiums or forward trade will ease due to a possible foreign outflow from government securities after the Central Bank’s decision to limit commercial banks’ access to deposit facility.