Sri Lanka Newspapers Tuesday 13/03/2012

Rupee falls on import demand, liquidity tight

The rupee fell against the dollar on Monday (Mar. 13) on strong importer demand while banks continued to struggle to maintain overnight balances as liquidity tightens, currency dealers said.

The rupee fell to Rs. 122.0/20 against the dollar yesterday after opening the day at Rs. 121.60/80. "There was some importer demand which put pressure on the rupee," a currency dealer said.

Commercial banks continued to face liquidity constraints borrowing Rs. 10.50 billion as a last resort from the Central Bank at 9 percent via the reverse repurchase window yesterday. Nearly Rs. 54 billion has been borrowed from the Central Bank since the beginning of this month and yesterday’s Rs. 10.50 billion has been highest for a single day so far. The reverse repurchase window was hardly used for several years, last used with some frequency in mid 2009 when the rate was 11 percent.

Overnight excess liquidity in the banking system was around Rs. 8.5 billion at the close of yesterday’s trading sessions.

A further Rs. 35 billion has been injected in the system via cash auctions since the beginning of the month with the Central bank injecting Rs. 3 billion at 8.925 percent yesterday.

Overnight interbank borrowing rates eased yesterday after spiking last Friday.

The call market rate for interbank borrowings without security eased to 9.91 percent from 10.11 percent while the market repo rate for interbank borrowings backed by securities eased to 8.90 percent from 8.98 percent. The overnight Sri Lanka interbank offered rate eased to 10.01 percent from 10.19 percent last Friday.

"Rates are higher towards the end of the week considering the requirements over the weekend. These movements are not very significant. However, the overall trend is for rates to tighten," a currency dealer said.

Meanwhile, the average weighted prime lending rates of the commercial banking system reached 11.99 percent last Friday, up from 9.04 percent a year earlier. These rates apply to high net-worth individuals and corporations, with ordinary borrowers paying much more for the loans. Banks have also upped their deposit rates in a bid to attract more funding.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=47286

Europe's main stock markets were muted in morning deals on Monday as EU finance ministers were to sign off Greece's new bailout at a Brussels meeting, while traders also digested weak Chinese data.

London's benchmark FTSE 100 index of leading shares was flat at 5,887.38 points, Frankfurt's DAX 30 won 0.36 percent to 6,904.69 points and in Paris the CAC 40 edged up 0.08 percent to 3,490.39.

In foreign exchange trading, the European single currency rose slightly to $1.3124 from $1.3120 late in New York on Friday.

“Equity markets this morning awoke to a slightly larger wall of worry to climb than they left on Friday afternoon, with Asia's superpower spluttering once again in the face of a now established trend of softer economic performance,” said Spreadex trader David White.

The deficit was the biggest for at least 12 years, according to Dow Jones Newswires -- the extent of its archived data -- and far in excess of the median forecast of $8.5 billion among 15 economists it surveyed.
http://www.dailynews.lk/2012/03/13/bus10.asp

Broking firm DNH Financial Ltd. is stressing that with interest rates on the rise, stock selectivity becomes even more vital for investors.
It said Treasuries yields have risen across maturities with the three month, six month and 12 month yields rising by 31 bps, 24 bps and 15 bps respectively to 10.11%, 10.18% and 10.45% respectively. A total of Rs. 10 billion were offered for sale at the last bill auction while Rs. 9.47 billion of bids were accepted.
“Rising interest rates are likely to dampen credit growth at least in the short term, and will also impact negatively on companies that are highly leveraged resulting in margin erosion for those that are unable to successfully pass over the cost increases via higher selling prices,” DNH said. “Consequently, for an investor, stock selectivity will become even more important to determine the winners from the losers,” it added.
DNH is also advising investors to avoid the ‘herd mentality’ which it described as the main catalyst for bullish or bearish trajectories of the market in the recent past.
“This should be avoided in order to preserve capital and generate sustainable alpha in the medium to longer term,” it said. However, it said if an investor is still seeking short term gains, then it may be far more prudent to sit in cash as an asset class rather than invest in the expectation of overnight gains which could lead to a potentially loss making position.
“However for those investors who prefer long term sustainable returns, a bottom up stock selection approach is advised in order to build a quality portfolio which will generate double digit returns over a wider investment horizon and weather market volatilities,” DNH said.
“In order to benefit fully from a flight to quality strategy however, investors may need to maintain a healthy investment horizon and provide sufficient time for their investments to generate necessary alpha. Consequently, we advise investors to consider investment as opposed to speculation,” it added.
Whilst pointing out that the equity market has a notorious tendency to rush from one side to another in response to the ebb and flow of optimism or pessimism, DNH is recommending investors to make a directional call, build a quality portfolio and take advantage of what is increasingly becoming a ‘stockpickers’ market.
Focusing on overall growth prospects for the economy, DNH said there has been much concern over the prospect of a slowdown in real GDP growth on the back of the fuel price hike and rising interest rates. However it believes that although a slowdown from the current growth of 8.0%+ may be inevitable this year, prospects for the medium to longer term are likely to remain strong as economic activity in the northern and eastern parts of the country becomes more apparent and GDP contribution from these areas start to be more absorbed.
“Contrary to some market commentators, Sri Lanka does not share the same economic fragility or uncertainty currently evident in the Eurozone or the US given the country’s robust domestic consumption cycle that currently underpins the country’s economic growth,” opined DNH Financial.
The broking firm is also expecting bank credit growth to slow down in the second quarter of 2012.
It said in line with the Central Bank’s efforts to tame credit growth, bank credit growth may slide in 2Q2012 as a result of rising interest rates. Credit growth in 2011 rose by a significant 31% to Rs. 1906 billion, outpacing most emerging markets.
“One potential risk to the credit off-take in previous months is the loan-to-deposit ratio rising to well over 90% for select lenders indicating that greater amounts of high cost borrowed funds may need to be used to cover loan books,” DNH said.
“In Sri Lanka, credit growth is not only pro-cyclical, but tends to grow faster than GDP during expansions and more slowly during recessions. While credit growth may continue to slow down going into the 2nd quarter, however, underpinned by strong macroeconomic fundamentals and a continued expansion in both the private and Government sectors, we expect momentum to resume in 2013/2014. With real GDP growth forecast at over 8% in the coming years, bank credit should recover and grow faster enabling commercial banks to sustain earnings growth,” it added.
http://www.ft.lk/2012/03/13/with-interest-rates-rising-stock-selectivity-becomes-vital-dnh/

Govt. to take back underdeveloped estates from regional plantation companies
March 12, 2012, 10:38 pm

By Pabodha Hettige

The Land Reform Commission has set the machinery in motion to take back nearly 4,500 acres of underdeveloped state lands given for small and medium regional plantation companies and other developers by May this year.

Ellepola and Hangarankanda estates of Matale district, Pedro and Scrub Estates of Nuwara Eliya district, Pannilawatte Estate of Kurunegala district and Dombagahakumburawatte of Ratnapura district are among those that would be acquired.

"Forty one such lands given to regional plantation companies had been identified by the commission so far," Executive Director of the commission, Hariguptha Rohanadeera said.

The commission had earlier given a grace period for the companies to develop those lands but no satisfactory efforts had been shown.

Recently an eight member committee had also been appointed by the commission to make further identifications of such lands and to suggest measures for their development after the acquisition by the commission.Rohanadeera said that as the initial step of this acquisition process, the commission had acquired in November 2011 over 1,000 acre Hesswatte estate given to a regional plantation company in Embilipitiya.

"Before May the commission is also planning to acquire the 900 acre Brampton Estate in Ratnapura district, where hardly any development had taken place," he said.