Categories: Business

LNP – Central Bank likely to maintain surplus liquidity in rupee money markets

  • Speculation was rife that bond payment could create a shortage in rupee liquidity market
  • But CB purchased T-bills worth Rs.123.1bn on Oct. 2, to keep overnight rates from rising
  • Also, open market operations auctions were conducted on same day, showing commitmentÂ
  • Fitch expects higher pressure on foreign currency liquidity due to heightened refinancing risks and weaker sovereign profileÂ
  • Seventh Monetary Policy scheduled for Oct. 16 and Monetary Board likely to stay pat

Fitch Ratings Lanka Limited failed to see any near-term pressure on rupee liquidity, as the Monetary Board of the Central Bank could stay its key policy rates ‘lower-for-longer’, which provides direction as to how the lending rates are priced in other markets underneath.Â


Sri Lanka’s money market liquidity fell by Rs.47.63 billion on Friday, in one of the largest single-day declines to Rs.139.4 billion, as the Central Bank repaid a billion dollar sovereign bond due on October 4.Â


There was speculation building up leading up to last week’s sovereign bond settlement by the Central Bank, as it could create a shortage in the rupee liquidity market. But the Central Bank purchased Treasury bills to the tune of Rs.123.1 billion on October 2, to facilitate the bond repayment and to keep the overnight rates from rising.Â
The Central Bank conducted its open market operations auctions on the same day, in a further indication that it remains committed to maintain surplus liquidity in the rupee money markets.


The rupee liquidity backed up fast by Rs.23.75 billion on Tuesday to Rs.160.02 billion.Â


The seventh Monetary Policy is due on October 16 and a broader section of economists and analysts expect the Monetary Board to stay pat, as the earlier actions taken to bring down the rates are fast taking route in the lending markets.Â


“We do not expect pressure on rupee liquidity in the near term, due to the Central Bank of Sri Lanka’s accommodative monetary policies,” Fitch Ratings said in a recent rating report on Nations Trust Bank (NTB).Â
Affirming NTB’s national long-term rating at ‘A’, with a stable outlook, the rating agency said the bank’s loan-to-deposit ratio had slipped to 94 percent by end-1H’20, albeit it could rise with the resumption of lending activities.Â
Sri Lanka’s banks ramped up lending from June, surpassing the pre-pandemic levels around July while the outstanding private sector credit grew by Rs.78.3 billion in August, signalling a recovery in economic activity.
However, the resurgence of the virus could stall the gains made.


The loan-to-deposit ratio fell in most banks, as there was a larger build up of deposits during March through July, since people and firms left moneys in their bank accounts, while the growth in loans was anaemic during lockdowns.Â


However, with the banks resuming lending, the ratio could rise, as the banks could rely on medium-term non-deposit funding to match asset and liability maturities, Fitch ratings said.Â


While Fitch does not expect the rupee liquidity to come under pressure, it expects higher pressure on foreign currency liquidity, due to heightened refinancing risks and weaker sovereign profile.Â


“However, we expect elevated pressure in terms of access to and pricing of foreign-currency funding due to heightened refinancing risks from the weaker sovereign profile,” the rating agency added.  Â

Thanuka

Recent Posts

LNP – Sri Lankan Kottu, Vatalappam added to Oxford English Dictionary

Sri Lanka’s rich culinary and cultural heritage has received global recognition as several locally popular…

5 hours ago

LNP – Sri Lankan engineer Meriesha Fonseka joins Airbus Wichita Facility Team

Airbus has spotlighted Meriesha Fonseka, a talented Sri Lankan engineer, as part of their single-aisle…

5 hours ago

LNP – Former Health Ministry Secretary Chandragupta arrested

Former Secretary to the Health Ministry Janaka Chandragupta, who arrived at the Commission to Investigate…

6 hours ago

LNP – Rs.100, 000 bribe, former land officer landed in jail for 22 years

The Colombo High Court yesterday sentenced a retired land officer to 22 years of rigorous…

12 hours ago

LNP – Hundreds of vehicles stranded as Sri Lanka Customs enforces decade-old import rule

Hundreds of vehicles are stranded at the port, with hundreds more on the way, after…

12 hours ago

LNP – Starlink internet service to launch for local customers after one-week inspection

The Starlink satellite internet service will be made available to local customers following a one-week…

12 hours ago