ECONOMYNEXT – Sri Lanka’s rupee opened around 304.45/55 to the US dollars in the spot market Thursday around the same levels as the closing a day earlier while bond yields were flat after a fall.
The rupee has fallen from 302.55/60 to the US dollar from the beginning of the month.
The central bank is no longer printing money through open market operations and is giving money only for clearing purposes at the ceiling rate, which encourages banks to fund credit with real deposits.
Some short term rates have moved up which should support the rupee by discouraging non-deposit finance credit even as longer term yields, which should be driven by considerations other than short term liquidity, fell on strong fiscal performance.
The central bank however has a habit of intervening and buying dollars to create excess liquidity from private dollar sellers, but not giving them back when the unsterilized excess liquidity turns into imports via credit.
A weakening rupee can push up losses in state energy utilities as well as current expenditure of the government, putting budgets out of kilter, as well as pushing up dept repayment costs.
Sri Lanka’s budgets were shattered from the 1980s amid currency depreciation after the IMF’s second amendment to its articles, which undermined and discredited the deepest reforms (liberalizations) ever done by a post-independent government and instead triggered social unrest.
The cost of depreciation is not taken into account in calculating budget deficits, perhaps because currency falls were rare before macro-economists started to print money for a ‘policy rate’ and de-stabilize exchange rates in the 1930s as the start of the age-of-inflation analysts say.
A bond maturing on 15.12.2026 quoted 8.20/30 closed at 8.20/28 percent down from 8.25/30 percent yesterday.
A bond maturing on 15.09.2027 quoted 7.75/85 closed 8.75/83 percent down from 9.12/15 percent.
A bond maturing on 01.07.2028 quoted at 9.10/20 closed at 9.10/17 percent from 9.18/25 percent.
A bond maturing on 15.12.2028 was quoted at 9.60/65 closed at 9.60/65 percent 9.63/68 percent.
A bond maturing on 01.07.2030 was quoted 9.75/80 closed 9.73/78 percent from 9.75/78 percent.
A bond maturing on 13.03.2031 was quoted 10.0/10 closed at 10.00/10 percent, from 10.05/12 percent.
A bond maturing on 15.12.2032 was quoted at 10.42/48 percent closed at 10.42/48 percent down from 10.50/55 percent.
A bond maturing on 01.11.2033 was quoted at 10.55/65 closed at 10.57/62 percent down from 10.65/72 percent. (Colombo/Oct30/2025)