Slash in policy rates sees repurchase rate at 14-year low while sending bond prices soaring

Wednesday, 16 October 2013 00:00 - - {{hitsCtrl.values.hits}}

By Wealth Trust Securities The cut in policy rates by 50 basis points (bp), the second such move for this year following its 50 bp cut in May as well sent secondary market bond prices soaring yesterday.

The repurchase rate of 6.50% was the lowest level recorded since 1999 while the reverse repurchase rate of 8.50% was the lowest since January 2012. In secondary bond markets, activity continued to remain very high yesterday mainly surrounding the liquid two maturities of 1 January 2017 and 1 April 2018 within daily highs of 11.10% and 11.20% respectively to a four month low of 10.95% and 11.10%. In addition, considerable volumes of two illiquid five-year maturities (i.e. 1 February 2018 and 15 November 2018) were seen changing hands within the range of 11.30% to 11.35%. Meanwhile, buying pressure in secondary bill markets saw May 2014 bills trade within the range of 9.25% to 9.40%, June 2014 within the range of 9.60% to 9.75% while the 364-day bill and durations surrounding it was seen changing hands within a low of 10.05% to a high of 10.30%.

Overnight call money and repo rates reflected a dip yesterday in line with the policy rate reduction to average 7.81% and 7.08% respectively. Liquidity remained at a surplus of Rs. 12.69 billion as the Open Market Operations (OMO) department of the Central Bank was seen mopping up an amount of Rs. 2.3 billion for a period of seven days at a weighted average of 7.49% by way of a repo auction while a further amount of Rs. 10.39 billion was seen been deposited at CBSL’s repo window of 6.50%. Rupee dips marginally In Forex markets yesterday, the USD/LKR rate lost ground marginally by 27 cents to close the day at Rs. 131.13/18 on the back of importer demand as volumes traded moderated. The total USD/LKR traded volume for the previous day (11 October 2013) stood at $ 59.07 million. Some of the forward dollar rates that prevailed in the market were 1-Month: Rs. 131.96, 3-Months: Rs. 133.48 and 6-Months: Rs. 136.01.