Interest rates up

Sri Lanka's overnight interest rate hovered nearer to a recently hiked policy rates Friday amid tighter liquidity, supporting its exchange rate and bond yields spiked, a day earlier, dealers said.

Gilt-backed repos were quoted at 9.25/50 percent, still below the 9.75 percent policy reverse repo rate of the Central Bank but higher than the below 9.0 percent rates seen in April amid excess liquidity from money printed to pay state worker salaries.

Overnight call money rates were quoted at 10.00/25 percent for the giving support to the exchange rate.

High short term rates, discourage the holding back of dollars by exporters as it is more profitable to hold rupee assets.

On Thursday excess liquidity in the banking system dropped to Rs4.9b. The Central Bank's Treasury bill stock was steady at 241 billion rupees against from Rs 240b a day earlier, after spiking from Rs 233b on April 30.The spot US dollar was quoted around Rs126.50/127.50 at opening.On Thursday bond yields spiked with a 3-year bond maturing on 15 July 2012 being traded as high as 13.20 percent up from 12.80/90 percent levels a day earlier, moving above 13.00 percent for the first time.

A 2-year bond maturing on March 01, 2014 rose was quote around 12.75.13.00 percent.

(Courtesy LBO)