Thursday May 28, 2026
Thursday May 28, 2026
Wednesday, 27 May 2026 00:04 - - {{hitsCtrl.values.hits}}
By Wealth Trust Securities
At the 03rd Monetary Policy Review for 2026 announced yesterday, the Central Bank of Sri Lanka (CBSL) decided to increase the Overnight Policy Rate (OPR) by 100 bps to 8.75%, marking the first-rate hike since the easing cycle concluded.
Yesterday’s tightening comes after a pause stretching back to June 2025 and begins to reverse some of the cumulative 825 bps of policy easing implemented since June 2023. The Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR), linked to the OPR with pre-determined margins of ±50 bps, were also increased to 8.25% and 9.25%, respectively.
At the weekly Treasury Bill auction conducted yesterday, rates were seen increasing for the second consecutive week. This reflected the bearish bias as well as the 100-basis point Monetary Policy rate hike. Accordingly, the weighted average yield rates on the 91-day tenor increased by 118 basis points to 9.36% and the 182-day tenor increased by 143 basis point to 9.68% and the 364-day tenor increased by 134 basis points to 9.83%. Rates were seen rising to highest level in around 79 weeks since late November 2024.
The Auction was undersubscribed, raising the only 68.26% or Rs. 95.56 billion out of the Rs. 140 billion on offer at the first phase in competitive bidding. The bid to offer ratio stood at 1.23 times.
The Phase II subscription across all three maturities is now open until 3.00 pm of business day prior to settlement date (i.e., 27.05.2026) at the WAYRs determined for the said ISINs at the auction (given in the table are the details of the auction).
The secondary Bond market yesterday turned bearish in line with the Monetary Policy Tightening. Activity and transaction volumes were seen at subdued levels as market participants adopted a wait and see approach ahead of the upcoming Treasury Bond auction. The prevailing uncertainty in the Middle East as well as volatile and persistently elevates crude oil prices continued to exert an upward pressure on rates. Despite the lack of transactions, secondary market two-way prices were observed quoted both notably higher and wider at the close.
These developments come ahead of the Rs. 240 billion round of Treasury Bond auctions due to be held today, 27 May. The round of auctions will have a total offered amount of Rs. 240 billion across three available maturities.
The auction will be comprised of: Rs. 90.00 billion from a 1 August 2030 maturity bearing a coupon rate of 10%; Rs. 70 billion from a 15 January 2033 maturity bearing a coupon rate of 11.20%; Rs. 80 billion from a 15 March 2035 maturity bearing a coupon rate of 11.50%. The settlement for which will be held on 1 June 2026.
For context at the previous auction held on 12 May: The Treasury bond auction priced largely in line with or below market expectations despite external pressures from Middle East tensions and elevated crude oil prices. The auction was undersubscribed, raising only Rs. 176.62 billion against the Rs. 250 billion offered (bid-to-accepted ratio: 2.47x).
Specific maturity-wise outcomes:
In the money market, the net liquidity surplus recorded at Rs. 142.31 billion yesterday. An amount of Rs. 132.42 billion was deposited at Central Banks SDFR (Standing Deposit Facility Rate) of 8.25% as against an amount of Rs. 90.11 billion withdrawn from the Central Bank’s SLFR (Standing Facility Rate) of 9.25%. The Domestic Operations Department (DOD) of the Central Bank of Sri Lanka to continue to drain out an amount of Rs. 100.00 billion by way of overnight repo auction at a weighted average rate of 8.75%.
The weighted average rates on overnight call money and Repos were recorded at 8.99% and 9.02%.
Forex market
The USD/LKR rate on spot contracts was seen closing at the rate of LKR. 324.50/326.00 appreciating further from the previous day’s close of LKR. 325.50/327.00.
The total USD/LKR traded volume for 25 May was $ 90.15 million.
(References: Public Debt Management Office - Ministry of Finance, Central Bank of Sri Lanka, Bloomberg E-Bond Trading Platform, Money Broking Companies)
