US$ 26 mn flows into Treasury bonds – Govt thirsty for funds, rupee under pressure to appreciate
Dealers said last week the rupee was under pressure to appreciate while government appetite for short term funds was a reason for benchmark Treasury bill rates to inch upwards while commercial bank indicative rates inched downwards, indicating that private sector demand was not yet strong.
Dealers said the market had a surplus dollar position as a foreign investor bought rupee government bonds equivalent to US$ 26 million through a branch of a foreign bank operating in Sri Lanka.
“The dollar was trading around 114.20/25 against the rupee at the lower end of the Central Bank band as the rupee was under pressure to appreciate. We also saw exporters converting their forward positions. If not for Central Bank intervention the rupee could have sharply appreciated,” a dealer speaking to the Island Financial Review last Friday.
“We saw more inflows than outflows during the week,” another dealer said.
The Central Bank kept the dollar at a wide band of 114.35/75 against the dollar.
Benchmark Treasury bill rates continued to inch upwards during the week as the government seeks short term funds until the budget is presented by the new parliament by May while the Central Bank continued to mop up excess liquidity throughout the week.
The three month Treasury bill rate inched upwards to 8.17 percent from 8.07 percent a week ago while the rate on the six month bill moved to 9 percent from 8.95 percent. The twelve month Treasury bill rate remained unchanged at 9.46 percent.
“Benchmark rates are inching upwards because the government has an appetite for short term funds and since there is hardly any demand from the private sector for credit banks invest their excess rupees in government securities used by the Central Bank in its open market operations,” a dealer said.
Last week the Central Bank mopped up close upon Rs. 104.58 billion from the domestic banking system absorbing Rs. 23 billion last Monday, Rs. 27.48 billion on Tuesday, Rs. 23.50 billion on Wednesday, Rs. 18.60 on Thursday and Rs. 12 billion on Friday. The yields on Treasury instruments used for the mop up were stable at 8.17/18 percent levels.
“With no banks willing to commit funds on long term credit and in the absence of quality borrowers it only makes sense to invest in government securities through the Central Bank’s open market operations,” a dealer said.
“There is some concern about inflation but we feel the Central Bank would be able to maintain present policy rates until about June. Private sector credit is not picking up to levels the Central Bank wants but we can see the preliminary signs that credit could pick up,” a dealer said.
Some dealers said, however, the Treasury bill auction did not generate enough interest from the banks. Bids amounting to Rs. 21.4 billion were received by the Public Debt Department of the Central Bank of which Rs. 11.4 billion were accepted at last week’s auction.
“Most banks merely rolled over their positions while others made bids because there is a compulsory minimum bid, other that that there was no indication that fresh positions were opened,” a dealer said.
Meanwhile indicative rates of commercial banks declined marginally during the week.
The average weighted prime lending rate (offered to high-net-worth clients) dropped to 10.80 percent from 10.99 a week ago. The average weighted fixed deposit rate settled lower at 10.46 percent from 10.91 percent. Both these rates stood at 16.92 and 19.18 percent a year ago.
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