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Rupee Strengthens, Longer Term Yields Fall

The exchange rate (ER) at Friday’s trading held on to its Thursday’s position on thin trades, while the yields of long tenure treasuries continued to fall in the backdrop of Central Bank of Sri Lanka (CBSL) announcing a Treasury (T) Bond auction tomorrow (Monday), market sources told this newspaper.

As a result, the ER remained unchanged at Rs. 130.50/60* to the US dollar ($) in interbank spot trading, same as its closing on Thursday, and gaining by 35 Sri Lanka cents (SLc) week on week (WoW).

In the previous week, the ER had had closed at Rs. 130.90 to the $.

Meanwhile, due to local interest in the longer tenure Treasuries, the 2017 maturity strengthened to 10.65/70% in two way quotes. It closed the previous day at 10.70/75%, while the 1.4.18 maturity closed the week at 10.95/11.00% in two way quotes, a gain from the previous week’s close of between 11.15% and 11.20% or thereabouts.

Tomorrow’s T Bond auction is for 2019, 2028 and 2033 tenures, the amounts being Rs. one billion, Rs. two billion and Rs. five billion respectively.
Longer Tenures

Interest is in the longer tenures because the market feels that there is scope for those to come down further, the sources said.

At the beginning of the week on Monday the rupee virtually held on to its overnight position, being quoted at Rs. 130.90/131.00 to the $ in two way quotes on thin volumes, with investors adopting a cautious attitude before next month’s budget, coupled with time yet remaining before seasonal pressure gets the better of the rupee, sources said.

The fallout from the previous week’s shortness due to Haj and poya holidays which shaved off two working days have also dampened importer enthusiasm which however will pick up during the course of the current week, the sources had then said.

“But the short week proved no hindrance to exports because the markets to which we move our exports were open, though we were on holiday,” they said.

But imports such as potatoes and onions usually procured by Pettah were however affected because government establishments such as Customs were closed during those holidays, the sources.  However import activity will be renewed this week, they said.

If in the previous week state owned Bank of Ceylon (BoC) was selling $s to the market,  that didn’t necessarily mean that they were so doing on
behalf of CBSL to protect the rupee, the sources said. It may even mean that BoC was taking up positions for its own benefit by indulging in such $ sales, they said.

“Selling of the greenback didn’t take place on a continuous basis for us to assume that the few sales that took place were done to protect the rupee,” the sources said.
Meanwhile Tuesday over Monday the ER marginally strengthened by 10 SLc to Rs.

130.80/95* in two way quotes in interbank spot trading against the $ on thin volumes, sources said.

The ER the previous day had closed at Rs. 130.90/131.00* to the $ in two way quotes.

A variation of 10 SLc may be discounted, the sources said. They further said that in the last two years or so, seasonal import demand had little or no impact on the ER due to inflows.

“It’s unlikely that the pattern will change this year, the sources said.

However the story was different 3-4 years ago when seasonal pressure did have an impact on the ER then, the sources said.

The following day Wednesday the ER continued to strengthen on the back of remittance inflows led by the diaspora, coupled with inflows into blue chip JKH due to foreign buying over its rights issue, but a banker predicted that seasonal pressure would overtake ER from next month.

Nevertheless another banker challenged this opinion saying that that may have had been the case three or four years ago, but since then remittance inflows had had nullified seasonal pressure in the past two years, he argued.

Meanwhile the ER in the middle rate in two way quotes saw its value increase by 15 SLc to Rs. 130.70 to the $ in interbank spot trading on Wednesday. It closed the previous day at Rs. 130.80/95* to the $.

*For comparisons, it’s the middle rate in two way quotes of the ER that is considered.

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