MONETABRIEF – The Sri Lanka rupee closed at 330.10/20 to the US dollars in the spot market down from 331.05/15 a day earlier, dealers said as the central bank allowed the currency to appreciate.
Under so-called flexible exchange rate the central bank can buy dollars to create money and depreciate the rupee at will as it did over 2025, even with broadly deflationary policy due to coupon payments on its bond portfolio.
The central bank also tends to build up excess liquidity and dishonor its note issue, sowing panic in forex markets and promoting speculation among both importers and exporters as well as triggering capital flight.
At the moment after the last currency collapse and correction in the policy rate to slow credit growth there have been strong foreign interest in rupee bonds.
After initially resisting appreciation, authorities allowed the rupee to appreciate, and forward premiums which were around 1.50 rupees a month fell toward 1.20 over the past week, triggering selling by both exporters and banks.
However excess liquidity is climbing up.
In 2018 after building up excess liquidity with outright purchases of bonds and fx swaps (monetizing Hambantota Port sales proceeds) the central bank dishonored its note issue and busted the currency, discrediting the economic program of the then administration.
After putting foreign investors to flight with the flexible exchange rate, they were also blamed for the fall of the currency.
Bond yields which fell sharply over the week, was mostly flat except for longer tenors, where yields constinued to ease.
A bond maturng on 05 Dec 2026 closed at 9.20/9.40 percent from 9.20/9.40 percent.
A bond maturng on 15 Jan 2027 closed at 9.30/9.50 percent from 9.30/9.50 percent.
A bond maturng on 01 May 2027 closed at 9.40/9.60 percent from 9.40/9.60 percent.
A bond maturng on 15 Sep 2027 closed at 9.50/9.70 percent from 9.50/9.70 percent.
A bond maturng on 15 Oct 2027 closed at 9.60/9.80 percent from 9.60/9.80 percent.
A bond maturng on 15 Dec 2027 closed at 9.70/9.90 percent from 9.70/9.90 percent.
A bond maturng on 15 Feb 2028 closed at 9.95/10.05 percent from 9.90/10.00 percent.
A bond maturng on 15 Mar 2028 closed at 9.95/10.05 percent from 9.90/10.00 percent.
A bond maturng on 01 May 2028 closed at 10.00/10.10 percent from 9.95/10.05 percent.
A bond maturng on 01 Jul 2028 closed at 10.05/10.15 percent from 10.00/10.10 percent.
A bond maturng on 01 Sep 2028 closed at 10.10/10.20 percent from 10.00/10.10 percent.
A bond maturng on 15 Oct 2028 closed at 10.10/10.20 percent from 10.05/10.15 percent.
A bond maturng on 15 Dec 2028 closed at 10.15/10.25 percent from 10.10/10.20 percent.
A bond maturng on 15 Jun 2029 closed at 10.30/10.40 percent from 10.30/10.40 percent.
A bond maturng on 15 Sep 2029 closed at 10.40/10.50 percent from 10.40/10.50 percent.
A bond maturng on 15 Oct 2029 closed at 10.45/10.55 percent from 10.45/10.55 percent.
A bond maturng on 15 Dec 2029 closed at 10.45/10.55 percent from 10.45/10.55 percent.
A bond maturng on 01 Mar 2030 closed at 10.60/10.70 percent from 10.60/10.70 percent.
A bond maturng on 15 May 2030 closed at 10.65/10.75 percent from 10.65/10.75 percent.
A bond maturng on 01 Jul 2030 closed at 10.70/10.80 percent from 10.70/10.80 percent.
A bond maturng on 01 Aug 2030 closed at 10.80/10.85 percent from 10.75/10.85 percent.
A bond maturng on 15 Oct 2030 closed at 10.82/10.88 percent from 10.85/10.92 percent.
A bond maturng on 01 Feb 2031 closed at 10.90/10.95 percent from 10.90/11.00 percent.
A bond maturng on 15 Mar 2031 closed at 10.95/11.05 percent from 10.95/11.05 percent.
A bond maturng on 15 May 2031 closed at 10.95/11.10 percent from 10.95/11.10 percent.
A bond maturng on 01 Dec 2031 closed at 10.95/11.05 percent from 11.00/11.10 percent.
A bond maturng on 01 Oct 2032 closed at 11.15/11.20 percent from 11.20/11.30 percent.
A bond maturng on 15 Dec 2032 closed at 11.15/11.22 percent from 11.20/11.30 percent.
A bond maturng on 15 Jan 2033 closed at 11.30/11.35 percent from 11.40/11.45 percent.
A bond maturng on 01 Jun 2033 closed at 11.35/11.40 percent from 11.40/11.50 percent.
A bond maturng on 01 Nov 2033 closed at 11.40/11.45 percent from 11.45/11.55 percent.
A bond maturng on 15 Jun 2034 closed at 11.60/11.70 percent from 11.70/11.85 percent.
A bond maturng on 15 Oct 2034 closed at 11.70/11.75 percent from 11.75/11.85 percent.
A bond maturng on 15 Mar 2035 closed at 11.75/11.90 percent from 11.75/11.95 percent.
A bond maturng on 15 Jun 2035 closed at 11.75/11.90 percent from 11.80/12.00 percent.
A bond maturng on 15 Aug 2036 closed at 11.95/12.00 percent from 12.00/12.05 percent.
A bond maturng on 01 Jul 2037 closed at 11.95/12.00 percent from 12.05/12.12 percent.