MONETABRIEF – The Sri Lanka rupee closed at 331.05/15 to the US dollar Wednesday, stronger from 331.90/332 to the US dollar, while bond yields eased over the week, dealers said, amid high levels of excess liquidity.

The central bank tended to run – away from the excess liquidity and destroy the rupee at the slightest hit of trouble in the future, amplifying domestic and external shocks.

There had been strong foreign interest in rupee bonds, and the monetary authority which spreads a narrative that the rupee is 'market determined' resisted appreciation and bought dollars heavily at around 335 to the US dollar.

Earlier in the year, it busted the rupee from around 309 to 335 by dishonoring its note issue to amplify an external shock earlier in the year.

When the rupee appreciates there is positive speculation on the currency with exporter sales, banks selling down their net open positions and importers not covering.

However excess liquidity is climbing, with money printed from dollar purchases compromising a rate hike by the central bank to ward off inflation.

The appreciating the rupee however can push down prices.

The busting of the rupee on claims of an 'external shock' has already hit a democratically elected government which has raised taxes to avoid printing money, recalling similar situation in 2017-2019 where monetary instability from mid-corridor targeting discredited the economic program of a democratically elected administration.

There have been calls for the Treasury to buy dollars, to avoid central bank creating money through dollar purchases and subsequently running away from excess liquidity to bust the currency by dishonoring (denying convertibility) of their own notes.

Banks deposited 168 billion rupees in overnight repos on the standing window. A further 220 billion rupees was kept in term repos, allowing banks to earn a little higher interest while they found borrowers to generate imports through investment credit.

Market rates had plunged over the week with bill yields also falling at Wednesday's auction.

A bond maturing on 15.09.2027 closed at 9.50/9.70 percent Wednesday down from 9.75/90 percent from Monday.

A bond maturing on 15.10.2028 closed at 10.05/10.15 percent down from 10.15/25 percent Monday.

A bond maturing on 15.12.2029 closed at 10.45/10.55 percent, down from 10.55/65 percent.

A bond maturing on 01.08.2030 closed at 10.75/85 percent, down from 10.75/85 percent.

A bond maturing on 15.10.2030 closed at 10.85/10.92 percent, down from 10.75/90 percent Monday.

A bond maturing on 01.02.2031 closed at 10.90/11.00 percent hardly changed from 10.88/95 percent.

A bond maturing on 15.01.2033 closed at 11.40/45 percent, narrower from 11.40/50 percent.

A bond maturing on 15.10.2034 closed at 11.75/85 percent, unchanged from 11.75/85 percent Monday.

A bond maturing on 15.08.2036 closed at 12.00/05 down from 12.05/15 percent.

A bond maturing on 01.07.2037 closed at 12.05/12.12 percent, down from 12.10/20 percent down. (Colombo/Aug19/2026)