Interest Rates in the Treasury Bill Market declines to a Single Digit
The yields at the Treasury bill primary auction held on 23 September 2009 declined to a single digit level of 9.70 per cent for three months Treasury bills for the first time after November 2005.
With this reduction, primary market yield rates of the Treasury bills have declined by 763 – 795 bps during the year 2009. The primary market yield rates of Treasury bonds also followed the same trend and declined by up to 956 bps. The decline in yields is witnessed in all maturity classes of Government securities extending up to the 10 year maturity horizon. This reduction in yield rates is in line with the gradual easing of the monetary policy stance by the Central Bank of Sri Lanka and increased foreign investor participation in the Government securities market.
In line with these developments, a reduction in the entire interest rate structure in the economy, including the lending rates of the commercial banks is expected.
Sri Lanka to spend more than 0.5% of GDP on north rebuilding in 2010
Sept 24, 2009 (LBO) – Sri Lanka is expected to spend around 0.75 percent on reconstructing war-torn areas in the north and east in 2010, and it would be outside the program target agreed with the International Monetary Fund, an official said.
A 20-month program agreed with the IMF in July 2008, set a target of 6.0 percent of gross domestic product for the budget deficit for 2010.
Reconstruction spending would come on top.
“At this point I can’t say for certain, but we think somewhere around one half to three quarter percent of GDP in 2010 would probably be in line with what would be consistent with the program,” IMF mission chief Brian Aitken told reporters in Colombo this week.
“And again it is too early to say because we will be evaluating this in more detail when we come back in November.”
A preliminary Treasury document on the upcoming budget set the deficit at 6.6 percent of GDP for 2010.
This year’s deficit target of 7.0 percent is inclusive of northern reconstruction. A 30-year war with Tamil Tiger separatists ended in May.
“There is no large project reconstruction spending disbursement this year,” Aitken said.
“Most of the reconstruction again is – as we’ve discussed with the government – based on re-deploying the military towards re-constructing
roads, de-mining activities.”
Some of the activities will be funded by grants. Sri Lanka is also holding more than 250,000 war refugees in camps, a practice which has drawn
The IMF has also revised its economic growth target for 2009 to 3.5 percent of GDP from 3.0 percent, after a review this month, by a mission
headed by Aitken.
The revised program will be incorporated in a new letter of intent to be signed with the government.
Sri Lanka still has room for foreigners to buy bonds: CB Governor
Sept 24, 2009 (LBO) – A limit of 10 percent of outstanding government bonds remains in place, and foreign investors still have room to buy Sri Lanka government bonds, Central Bank Governor Nivard Cabraal said.
“The limits remains the same,” Governor Cabraal said. “There is no change.
“The borrowings will take place as and when the government needs it.”
Bond market participants said they were instructed not to sell bonds to foreigners temporarily this week by the government’s debt office, which is a unit of the Central Bank.
Yield on bonds spiked slightly by about 10 basis points early Thursday. Two year bonds which traded around 10.90 percent a day earlier traded around 11.0 percent today.
Sri Lanka has set a limit of 10 percent of outstanding bonds to be sold to foreign buyers and has now reached a limit of around 8.0 percent.
Yields on bonds have been falling steeply in recent weeks.
At Tuesday’s auction, 3-month Treasuries moved to single digits, falling 34 basis points to 9.70 percent. The Central Bank said auction rates have fallen 956 basis points so far this year.
Sri Lanka bond yields have fallen steeply helped by inflows to the bond markets, with an International Monetary Fund deal also in place.
Tax revenues have also been picking up, the IMF said.
However the flows into Treasuries markets from bond buyers are excluded from the foreign reserve targets in the program.
The Central Bank has been steadily sterilizing inflows into the bond market. By Wednesday its Treasury bill stock was down to 16.3 billion rupees, leaving it with little ammunition to sterilize future inflows.
The Central Bank has set a limit of 10 percent of outstanding rupee bonds for foreign purchases.
Sterilizing future inflows with its own securities results in a net interest burden to the Central Bank, as earnings from foreign reserves are less than the cost of sterilization.