CBSL Continues Monetary Easing; Introduces Single Policy Rate

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Daily report for the 27th November 2024 – Courtesy Wealth Trust Securities Ltd

  • CBSL Continues Monetary Easing; Introduces Single Policy Rate
  • T-Bill Rates Drop for the Third Consecutive Week
  • Secondary Bond Market Rallies Following Monetary Policy Announcement
  • Rs 205 billion T-Bond Auction in Focus
  • Rupee appreciates slightly

The Central Bank of Sri Lanka delivered two policy actions back-to-back. Firstly, it was announced that the CBSL would implement a single policy interest rate mechanism, designating the new ‘Overnight Policy Rate’ (OPR) as its primary monetary tool, replacing the Standing Lending and Deposit Facility Rates (SLFR/SDFR). As per the official press release it was stated that the CBSL will target to maintain the average weighted call money rate (AWCMR) at or around the announced OPR. Secondly, at the 6th and Final Monetary Policy Review for 2024 it was announced that the OPR would be at 8.00%, an effective 50 bps reduction from the existing AWCMR. In addition, it was stated that the Standing Facilities would be maintained at a +/- 50 Bps margin to the OPR. Accordingly, the SLFR and SDFR were reduced to 8.50% and 7.50% respectively, a 75 Bps reduction. As such the cumulative reduction in the standing facilities stands at 800 basis points since the current easing cycle began in June 2023.

At the weekly Treasury Bill auction conducted yesterday, weighted average rates were seen declining steeply following the monetary policy announcement. This marked the third consecutive week where rates were seen declining across the board. Accordingly, the weighted average rate on the 91-day tenor decreased by 57 basis points to 8.73%, the 182-day tenor by 63 basis points to 8.97%, and the 364-day tenor by 70 basis points to 9.08%. Total bids received exceeded the offered amount by 2.85 times, and the entire Rs 125.00 billion on offer was successfully raised at the 1st phase.

The 2nd phase of subscription for the auction will be opened for all 3 tenors at the weighted average rates until close of business of the day prior to settlement (i.e., 4.00 pm on 29.11.2024). Given below are the details of the auction;

The Secondary Bond Market yesterday continued to rally. Following the monetary policy announcement, aggressive buying interest was seen driving yields to fresh lows, on the back of heightened activity and sizeable transaction volumes.  Two-way quotes were seen closing drastically lower, despite some minor profit taking pressure.

The yields on the 2027 maturities (i.e. 15.09.27, 15.10.27 and 15.12.27) traded within the range of 10.20% to 10.50% in comparison to its previous day’s closing levels of 10.70/10.75 and 10.75/85 each respectively while the 15.02.28, 15.03.28 and 01.05.28 maturities were seen trading within the ranges of 10.65%-10.45% as against its previous day’s closing levels of 10.97/02, 10.98/05 and 11.05/10 respectively. The 15.09.29 maturity changed hands between the ranges of 11.05%-10.80%. In addition, the 01.10.32 maturity was seen trading at the rate of 11.30%.

In Secondary Market Bills, following the release of the auction results, May (close to 6 months) and November (close to 12 months) 2025 maturities were seen trading at lows of 8.90% and 9.00% respectively.

Today the CBSL is due to conduct a round of Treasury Bond Auctions with a total offered amount of Rs. 205 billion. The auction will be comprised of:

  • Rs. 80.00 billion: Maturing on October 15, 2028, with a coupon rate of 11.00%.
  • Rs. 75.00 billion: Maturing on March 15, 2031, with a coupon rate of 11.25%.
  • Rs. 50.00 billion: Maturing on November 1, 2033, with a coupon rate of 9.00%.

For context, the previous Treasury Bond auction conducted on the of 12th November: A 01.05.28 maturity (bearing a 09.00% coupon) was issued at a weighted average yield of 11.63% and the entire Rs 85.00 billion offered was raised at the 1st phase of subscription. In addition, a 01.10.32 maturity (bearing a 9.00% coupon) was issued at a weighted average rate of 12.32%, also raising the entire Rs 47.50 billion offered at the 1st phase itself.  In conclusion, the auction overall saw total bids received exceed the offered amount by 2.76 times and the entire total offered amount of Rs 132.50 billion was successfully raised in competitive bidding.

In money markets, the weighted average rates on overnight call money and Repo stood at 8.20% and 8.34% respectively.

The DOD (Domestic Operations Department) of Central Bank injected liquidity by way of an overnight reverse repo auction for Rs. 30.00 billion at the weighted average rate of 8.16% respectively.

The net liquidity surplus stood at Rs. 181.71 billion yesterday. No funds were withdrawn from the Central Banks SLFR (Standing Lending Facility Rate) of 8.50%, while an amount of Rs. 211.71 billion was deposited at the Central Banks SDFR (Standard Deposit Facility Rate) of 7.50%.

Forex Market

In the Forex market, the USD/LKR rate on spot contracts closed the day appreciating slightly to Rs.  291.00/291.10 against its previous day’s closing level of Rs. 291.10/291.20.

The total USD/LKR traded volume for 26th November was US $ 72.98 million.

(References: Central Bank of Sri Lanka, Bloomberg E-Bond trading platform, Money broking companies)