Markets in tumult over political uncertainty

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By 2018-01-23

BY Paneetha Ameresekere

Markets were rocked by President Maithripala Sirisena's statement, at a Local Government election rally in Kegalle on 22 January, that he is going to take over the running of the economy from his key coalition partner, the United National Front/United National Party, which, as a result, saw the benchmark 'spot' in interbank trading going below the Rs 154 mark at yesterday's (22) trading, for the first time, market sources said.

"It closed at Rs 153.95/154.05 to the US Dollar on thin trades, weaker by five cents over its previous day's (19) close, with trades being done at these levels," they said. "Volumes were thin, a reflection of the uncertainty prevailing in the market."

Meanwhile, the average selling price of the US Dollar among......commercial banks for telegraphic transfer, which comes with a 24-hour market day, lagged effect and fell by one cent to equal its second lowest price at Rs 155.69 to the US Dollar yesterday, with chances that it will break its lowest barrier of Rs 155.71 to the Dollar which took place on 17 January, at today's (23) trading.

In a further move to compress inflationary pressure, the Central Bank, by subscribing to Treasury (T) Bills, retired some of those Bills of Face Value (FV) Rs 16,626 million (debt capital plus interest cost to the Government of Sri Lanka because of such), thereby bringing down the Government's FV money printing liabilities by 53.91 per cent to Rs 14,211.87 million, yesterday.

The CBSL/GoSL was aided in this process due to the Treasury selling US$ 187.41 million (Rs 28,833 million), to the CBSL, being part of the US$ 470.57 million it recently raised by selling Sri Lanka Development Bonds (SLDBs) to the market, which settlement took place yesterday.

Due to these developments, the money market's net excess liquidity increased by Rs 12,207 million (57.73 per cent) to Rs 33,3352 million, thereby soothing interest rate pressure, reflected by the weighted average rate of call money declining by five basis points to 8.16 per cent yesterday.

The prevailing political uncertainty also rubbed the Stock Market, with investors losing Rs 8.2 billion at yesterday's trading.
As a result, the benchmark All Share Price Index fell by 0.34 per cent to 6,421.40 points and the more sensitive Standard and Poor's Sri Lanka 20 Index by 0.49 per cent to 3,717.07 points on a paltry Rs 460.68 million trading, yesterday. The number of shares traded was a nominal 8.48 million.

However, foreigners seemed to be unperturbed over this seeming political instability, turning out to be net buyers after a two-market-day hiatus at yesterday's trading, resulting in a Net Foreign Inflow (NFI) of Rs 196.64 million, thereby taking NFIs in the calendar year to date to Rs 2,764.77 million. The NFIs were led by blue chip John Keells Holdings {JKH} (Rs 213.36 million). The JKH also contributed to more than half the day's turnover with a figure of Rs 259.73 million.

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