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Sri Lanka c.bank keeps rates steady, rupee still vulnerable

Reuters | 11.10.2019

COLOMBO, Oct 11 (Reuters) – Sri Lanka’s central bank left its key rates unchanged on Friday after loosening policy earlier this year, although growth is likely to remain subdued as the economy faces rising global risks.

The decision to hold rates was expected ahead of presidential elections next month and as lower bank rates go into effect following a raft of measures to support the economy.

But some analysts foresee the possibility of further loosening next year.

The central bank kept the standing deposit facility rate (SDFR) and standing lending facility rate (SLFR) steady at 7.00% and 8.00%, respectively. A Reuters poll had expected the Central Bank of Sri Lanka to keep both rates steady.

“The measures that have been put in place during the past 12 months are sufficient to achieve the desired outcomes, given adequate time for their transmission through the financial sector,” the central bank said in a statement.

Interest rates were lowered by 100 basis points in two meetings since May to bolster the economy after deadly Easter Day bomb attacks by Islamist militants.

Pressure on the rupee has been building since early September as foreign investors started to pull out their funds after the central bank’s rate cuts. The rupee is down around 4% against the U.S. dollar since April.

The central bank also reduced the SRR by 250 bps, releasing around 150 billion rupees ($832 million) of liquidity to the financial market and imposed caps on rupee deposit interest rates that enabled banks to reduce the cost of mobilising funds from the general public.

The Monetary Board last month ordered banks to cut interest rates on all rupee denominated loans by at least 200 basis points by Oct. 15, from levels in April.

The central bank said on Friday the economy was likely to remain subdued this year and was expected to recover gradually in the medium term. It had said in August that growth would slow to 3.1% or less in 2019.

Growth eased to a 17-year low of 3.2% in 2018 and a Reuters poll has predicted growth will be its lowest in nearly two decades this year.

Analysts say investors and businesses will likely be cautious until the Nov. 16 presidential elections are over.

“We are very close to the elections, so there is unlikely to be a change in rates,” said Dimantha Mathew, head of research at broker First Capital Holdings.

Capital Economics said in a report it was pencilling in a 50-basis-point cut for the second half of next year. “Global sentiment should start to improve around the middle of next year, and this could allow the central bank to cut interest rates further,” said Alex Holmes, Asia economist.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

Atchuthan Srirangan, Assistant Manager- Research at First Capital commenting on the bond and stock market forecast – 13.10.2019

Stock Brokers in Sri Lanka

“We expect markets to slow down with the ambiguity caused by the island wide presidential campaigns coupled with the release of upcoming company quarterly statements this week…….”

Atchuthan Srirangan, Assistant Manager- Research at First Capital commenting on the bond and stock market forecast. #CSE #CBSL #lka.

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

First Capital expects ASPI to hit 6,500 by 1H’20

Ceylon Today | 06.10.2019

A leading investment banking service provider expects the benchmark index of the Colombo Stock Exchange to hit 6,000 points by the end of this year, while the Sri Lankan rupee is expected to weaken to Rs 183 against the US dollar.

Though the rupee is predicted to weaken to
Rs 188 against the dollar by end-June next year, the firm believes the All Share Price Index (ASPI) would accelerate to 6,500 points.

First Capital Holdings, in its ‘Mid-Year Outlook’, said that a reversal in economic activity and upward trend in company earnings can be expected in the market, supported by stronger market multiples.

First Capital Head of Research, Dimantha Mathew said, “Stock markets usually pass through many phases.

It very rarely reaches fair value and as a result, markets either overshoot or overcorrect. The ASPI, we believe, has recovered to the ‘Disbelief’ stage from the ‘Depression’ stage, following the decline in interest rates.”

“We expect the market to adopt an upward trajectory over the next 12 months, as we expect the ASPI to reach the next stage of the market cycle – the ‘Hope’ stage – and then the ‘Optimism’ stage,” he said.

First Capital Holdings expects the lower interest regime to continue over the next 9-12 months, resulting in most companies recording lower finance costs.

The firm also expects the lower interest rate environment and the upcoming elections to boost consumer demand and economic activity, resulting in stronger topline growth for most companies.
In its report, the firms highlighted that the Sri Lankan rupee would weaken to Rs 183 against the US dollar, and further weaken to Rs 190 by end-2020.

The US dollar index was expected to remain strong with the Fed rate cut considered to be just an adjustment in the uptrend, adding that the volatile global environment was supporting the US dollar to remain strong in the mid-term, the firm said.

As the Sri Lankan economy picks up towards the fourth quarter of this year, the firm expects to witness a possible weakness in the currency, though it may be counterbalanced by possible inflows during the first quarter of 2020.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

Dimantha Mathew, Head of Research at First Capital commenting on the bond and stock market performance – 10.10.2019

Stock Brokers in Sri Lanka

“The secondary market remained at a standstill ahead of the monetary policy resulting the yield curve remaining unchanged. Stocks closed the day in marginal green as index gained by just 5 points…….

Dimantha Mathew, Head of Research at First Capital commenting on the bond and stock market performance. #CSE #CBSL #lka.

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

Atchuthan Srirangan, Assistant Manager- Research at First Capital commenting on the bond and stock market performance – 09.10.2019

Stock Brokers in Sri Lanka

“The secondary market yield curve shifted slightly downwards amidst the buying interest. In the stock market, bourse ended in green, continuing on the positive territory for the fourth straight session mainly contributed by the big caps JKH and HNB.N…………”

Atchuthan Srirangan, Assistant Manager- Research at First Capital commenting on the bond and stock market performance. #CSE #CBSL #lka.

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

Dimantha Mathew, Head of Research at First Capital commenting on the bond and stock market performance – 08.10.2019

Stock Brokers in Sri Lanka

“Both capital markets ended positively today. Bond market saw buying interest as liquidity levels slowly improved in the market. The stock market was in the green though activity levels were low with weak turnover……….”

Dimantha Mathew, Head of Research at First Capital commenting on the bond and stock market performance  #CSE #CBSL #lka.

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

First Capital rules out third rate cut

Daily Mirror | 09.10.2019

Treasury Bills and Bonds in Sri Lanka

First Capital Research predicts zero chance for a third policy rate cut this year ahead of Central Bank’s Monetary Policy Review scheduled for this Friday.
“The Central Bank (CB) is extremely unlikely to change its key monetary policy rates amidst the uncertainty hovering with the presidential election around the corner. The reduction of policy rates in August which was way in advance also supported this view,” First Capital Research stated in its Pre-Policy Analysis report.
The Central Bank already carried 50bps rate cuts each in May and August and the CB also imposed lending caps on banks in an attempt to increase credit flows to the productive sectors of the economy.
Further, the CB reduced the statutory reserve ratio (SRR) applicable on rupee deposit liabilities of Licensed Commercial Banks by 2.50 percent in order to improve the liquidity in the financial market.

Therefore, First Capital Research believes that a change in policy rates is not required for the year while allowing the impact of previous policy decisions to materialise.
It cautioned that any further rate cut would likely to increase foreign outflows from the country leading to further depreciation of the Rupee while a rate hike is likely to hamper the GDP growth.
“Since the previous rate cut on August 23rd, Rupee depreciated by 1 percent amidst the foreign outflows that amounted to Rs. 13.8 billion which resulted in foreign holdings in government securities declining below 2 percent, the lowest in recent times,” First Capital Research stated.
Sri Lanka’s second quarter economic growth slumped to a five-year low of 1.6 percent due to adverse economic impacts of Easter Sunday attacks.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

Policy rates likely to be held steady

Daily FT | 09.10.2019

First Capital Research yesterday said expectations were for the Central Bank to keep its policy rates unchanged when it announces its latest Monetary Policy stance later this week as the monetary authority has already relaxed rates twice this year and is therefore more inclined to wait for the impact of the previous decisions to materialise.

First Capital Research acknowledged that contrary to its expectations, the Central Bank decided to reduce SDFR and SLFR by 50bps each to 7% and 8% respectively, with the aim of boosting credit flows to productive sectors and in turn to assist the revival of the economy. With the Presidential Election scheduled for next month it is unlikely the Central Bank will change its policy rates at this point, the report observed.

“The Central Bank is extremely unlikely to change its key monetary policy rates amidst the uncertainty of the Presidential Election around the corner. The reduction of policy rates in August which was way in advance also supported this view,” it said.

Since the previous rate cut on 23 August, the rupee depreciated by 1% amidst foreign outflows amounting to Rs. 13.8 billion, which resulted in foreign holdings in Government securities declining below 2%, the lowest in recent times.

“Considering the previous 50bps rate cuts each in May and August and imposition of lending caps, First Capital Research believes that policy change is not required for the year 2019 while allowing the impact of previous policy decisions to materialise. Accordingly, we expect Monetary Board to hold rates for the rest of the year 2019.”

GDP growth for the 2Q2019 recorded at 1.6% significantly lower compared to 3.9% recorded in 2Q2018. In order to address the overly sluggish credit growth, over the past 11 months, the Central Bank undertook a number of monetary policy and regulatory measures to induce a reduction in market lending rates and thereby boost the GDP growth of the country.

Accordingly, the Central Bank reduced its policy rates by 50bps each in May and August and also reduced the SRR applicable on rupee deposit liabilities of Licensed Commercial Banks by 2.50% in order to improve the liquidity in the financial market. These measures were expected to stimulate the demand for credit while improving GDP growth of the country.

The growth of credit extended to the private sector has increased marginally by 1.16% since the beginning of this year, remaining far below the levels observed in the corresponding period of 2018, while NPLs have grown due to various factors. The Central Bank is of the view that excessively high nominal and real lending rates are a key reason for slowing credit expansion and rising NPAs. Moreover, SL’s real lending rates are found to be unacceptably high compared to its peer economies.

Accordingly, the Monetary Board decided to order the Licensed Banks to reduce interest rates applicable on all rupee denominated loans and advances by at least 200bps by 15 October, in comparison to the interest rates applicable as at 30 April.

Moreover, in the case of credit card advances, the maximum interest rate applicable has been reduced to 28% per annum. These measure are expected to lower market lending rates by banks, thereby boosting credit flows to productive sectors. This, along with improved repayment capacity of borrowers at lower interest rates, was expected to strengthen licensed banks, by addressing the challenge of rising NPLs.

The Government appointed a bid manager to raise $ 500 million via Samurai bonds while the issuance will take place in October or November ahead of the Presidential Election.

“We believe existing foreign reserves ($8.5 billion as at 30 August) are at a comfortable stage with sufficient foreign repayment cover suggesting the lower foreign currency requirement.  The new Samurai bond issue is expected to add a further cushion to foreign reserves.”

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

Nisansala Kuruppumudali, Research Analyst at First Capital commenting on the bond and stock market performance – 07.10.2019

Stock Brokers in Sri Lanka

“In the bond market the secondary market yield curve remained almost unchanged with limited activities while overall market witnessed thin volumes. In the equity market bourse ended in green on the price gains made in HHL and SAMP……..”

Nisansala Kuruppumudali, Research Analyst at First Capital commenting on the bond and stock market performance   #CSE #CBSL #lka.

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.