GoSL’s interest cost down 42% to Rs 5.8B

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By 2017-01-10

By Paneetha Ameresekere

Central Bank of Sri Lanka (CBSL) yesterday retired 2.9% (Rs10, 687 million) of its Treasury (T)-Bill holdings, thereby bringing down the same (money printing) to Rs 356,918.6 million during the course of the day's trading, data showed.
As per available CBSL data, CBSL's face value (FV) T Bill holdings, after taking into account maturing overnight repos of the previous market day (Friday, 6 January) and the settlement of outright sale of T-Bills (Rs 2.4 billion) of yesterday, were uplifted to Rs 367,605.65 million by yesterday morning.

In related developments, money printing (inclusive of Government of Sri Lanka's (GoSL's) interest cost because of such activities) as at the end of the previous market day's trading, as reflected by CBSL's FV T-Bill holdings then, plus Friday's overnight repos minus the previous day's standing lending facility value (SLFV) threw up a figure of Rs 366,202.65 million.
As a result of these developments, GoSL's interest cost on account of CBSL's face value (FV) T-Bill holdings as of yesterday evening, declined by a massive 42.33% (Rs 4,240.88 million) to Rs 5,777.6 million, data showed.

The money market also suffered a net excess liquidity drawdown of Rs 9,626 million (US$ 64.17 million) probably due to the protection of the rupee at the sacrifice of CBSL's foreign reserves and the money market's excess liquidity, actuated by foreign exits from the government securities market and/or GoSL's foreign debt servicing commitments.

Meanwhile, CBSL's FV T-Bill holdings at the end of the day's trading, without taking into account repos and SLFV stood at Rs 306,963.65 million, down Rs 2,400 million from the previous day's figure of Rs 309,363.65 million.
Money market's net, excess liquidity, threw up a figure of Rs 66,796 million, down from the previous day's figure of Rs 78,823 million.

Meanwhile, money market's excess liquidity, after taking into account the aforesaid outright sale of......T-Bills will have been diluted to
Rs 76,423 million by yesterday morning from the previous market day's closing figure of
Rs 78,823 million. In this instance, the maturing overnight repos of Rs 60,642 million had already been taken into account on the previous market day's (Friday 6 January) calculation of net excess liquidity.
ER down Rs 150.45/50
The exchange rate (ER) continued to depreciate in the foreign exchange (FX) market due to rising demand, by between five cents and 30 cents to close yesterday at Rs 150.45/50 to the US dollar in two-way quotes in one week's forwards, market sources told this reporter.
While one market source told this reporter that on Friday (6 January) the ER finished last week stronger, gaining by between 10 and 15 cents over the previous day Thursday's closing figure to close at Rs 150.20 to the US dollar in interbank one week's forwards, another source said that it fell by 10 cents to close last week at Rs 150.30/45 in two-way quotes to the US dollar in interbank one week's forwards, trading.
The difference in values is due to the fact that one bank's quote may be different to another's, where, in the final analysis an average should be given by the authorities.
However, CBSL does not throw up such interbank averages, other than averages pertaining to Colombo banks' buying and selling rates of selected foreign currencies (including the US dollar) as at 9.30 a.m. for telegraphic transfer on a daily market day basis.
Meanwhile, the spot is administered at Rs 150 to the dollar, thereby making the market deal in one week's forwards for price discovery. 'Spot' trades are settled after two market days from the date of transaction.

NFOs pass Rs 1B...
In other developments, net foreign outflows (NFOs) in the stock market passed the Rs one billion mark in the calendar year to date, in only the sixth market day of trading in the new year.

The bourse recorded a Rs 152.65 million NFO yesterday, taking NFOs for the new year to a thumping Rs 1.12 billion.
The stock market is bogged down by the twin evils of rising rates due to a lack of inflows and foreign exits to US based assets because of the uplift in interest rates in the world's largest economy. In the backdrop of the global financial crisis in 2007, the Federal Reserve System kept its benchmark policy rate, the Fed funds rate (FFR) virtually at zero levels to boost the economy, before raising it eight years later, by 25 basis points (bps) to be between 25- 50bps in December 2015 due to the recovery of the US economy, and, after another 12-month hiatus, again by another 25 bps last month, for the FFR to be currently at between 50-75 bps. The possibility of rising interest rates in the USA has been given a further fillip due to President Elect Donald Trump's campaign pledges. Those include protectionism, infrastructure spending, tax waivers and deregulation, all of which will give a boost to uplift inflation if implemented. As a result, the Fed is expected to hike the FFR at least thrice this year.

Further, these developments have also resulted in foreign funds exiting from markets such as Sri Lanka and re-parking in US based assets for 'better' returns. These developments have resulted in bringing down the stock market, while at the same time causing downward pressure on the rupee. Also, rising interest rates in the local market have induced local investors to exit from the bourse and re-park their assets in the fixed income market for better returns, thereby delivering a double blow to the local stock market.

Pyrrhic gains
In related developments, the stock market continued to make pyrrhic gains for the second consecutive market day yesterday, led by JKH, the market's largest capitalized stock and Chevron, its twelfth largest.
These two stocks, together with Nestle, the market's fourth largest capitalized stock, were the only three stocks to enter the Rs 100 million turnover club at yesterday's trading, contributing 67.01% to the total turnover of Rs 844.05 million. JKH led the way with a Rs 280.59 million turnover, followed by Chevron (Rs 184.44 million) and Nestle (Rs 100.31 million).
The stock market made a total turnover of Rs 844.05 million at yesterday's trading.

The number of JKH's shares traded was 1.99 million, Chevron 1.18 million and Nestle 50,154.
JKH share value (SVa) closed, up 0.28% at Rs 141.40 a share and that of Chevron, up 1.94% at Rs 158 a share. As the movement of market indices is intrinsically linked to market capitalization (MC), when the SVas of indices such as Chevron and JKH gain, then, not only do their individual MCs, but also the market's overall capitalization too gains.
However, SVa of Nestle's marginally fell by 0.03% to Rs 2,000 a share at yesterday's trading.
Meanwhile, the single biggest contributor to yesterday's share volume (SV) was Dunamis Capital, a Janashakthi/Chandra Schaffter company. Dunamis, on a 3.01 million SV, made a Rs 82.81 million turnover. Dunamis' shares closed, up 4.74% at Rs 24.30 a share. Dunamis was the fourth biggest contributor to yesterday's total turnover.

Number of gainers was 66 and losers 56.
The Colombo Stock Exchange (CSE) has thrown a seemingly improbable figure of 317.93 million, as the number of shares that were traded yesterday. As this is seemingly impossible going by yesterday's trading, this figure may be discarded.
As such, the local markets may have to settle themselves to a bleak future of no respite to the rupee being plagued by sharp, depreciative pressure this year, the bourse having a parlous year and local interest rates being on the rise.
Yesterday's T Bond auction saw the Government of Sri Lanka borrowing a sum of Rs 54,976 million from the market, marginally less than the original, earmarked figure of Rs 55,000 million.

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