The rupee closed slightly lower against the greenback yesterday (10) as state banks dominated activity in the country’s foreign exchange market while money market analysts hope for a rise in policy interest rates today, while stock exchange analysts prefer to see an easing of rates as the bourse continues to fall on low activity levels.
"The US dollar opened at a level of Rs. 133.55/65. Light importer demand coupled with demand from a state name saw the rupee weakening to Rs. 133.80 against the dollar which was the highest traded level for the day. However selling from another state name at Rs. 133.70 saw the US dollar holding below the crucial resistance point of 134.00.The rupee weakened marginally to close at 133.60/70," the Sri Lanka Forex Association said.
Currency dealers said a state bank intervened to prevent the rupee from depreciating beyond the Rs. 134 to a dollar.
Meanwhile, currency dealers said the Monetary Authority should raise policy interest rates with the economy undergoing some heavy inflationary pressure.
"Policy interest rates most probably would be kept at their current levels, but this would only postpone another crisis," a market analyst said not wanting to be named.
As reported in The Island Financial Review last Monday (09) private sector credit growth spiked in May, with Rs. 31.7 billion in new loans, as against Rs. 15 billion in April. Currency dealers said they are seeing a slowdown in lending, but it probably is not enough.
"This borrowing spree must be curtailed otherwise those depending on credit for entrepreneurial and working capital purposes may find it difficult to service their debt if interest rates increase higher than necessary. The Central Bank must tighten the screws sooner, rather than later," the analyst said.
Another analyst said policy rates should have been raised in June. "If the Central Bank does not see a problem, then they probably would keep the rates unchanged," he said.
However, the Central Bank has already slapped a 18 percent cap on credit growth, but analysts point out that more may need to be done.
The Central Bank is expected to release its monetary policy statement today.
Meanwhile, rising interest rates continued to dampen appetites at the Colombo bourse.
All three indices closed in the red on Tuesday (10).
The All Share Price Index closed 0.40 percent lower at 4,905.6, the Milanka Price Index of more liquid stocks was down 0.51 percent to close at 4,338.35 while the S&P SL20 index fell 0.10 percent to close at 2,793.56.
Year-to-date, the bourse has declined 19.2 percent.
Turnover reached Rs. 914.2 million on a volume of 23.1 million shares.
The market recorded a net foreign inflow of Rs. 256 million with foreign selling amounting to Rs. 10.9 million.
"Sri Lankan stocks still seem to be lacking widespread participation leading to a question on the market’s future vulnerability. Faltering trading maintains volume levels at comparatively low points. We believe that the darkness on the trading side is expecting to gain light after the publication of the monthly Monetary Review (today). However, foreigners increased their pace in the market as the day saw a net inflow of LKR 256 mn. Crossings in Aitken Spence Holdings, Hatton National Bank [Non-Voting] and Confifi Hotel assisted to hold up the beleaguering turnover and volume levels with a number of on-board deals on selected counters also bringing in their contribution. The crossing quartet breathed in c.65.4% to the day’s turnover," Softlogic Equity Research said.
"Keep your mind in the game : ‘Are we back to the 2008/2009 slow run again?’ questions investors. It should be noted that the 2008-2009 was followed by a fierce bull, thus, remember the whooping profits many enjoyed after accumulation on the bear turns of the bourse. Instead you should question, ‘So what happens when the stock’s price returns to the original levels?’ The trader on the right side of the market for the first time would consider buying at these levels again because they were profitable before. The trader on the wrong side of the market would breathe a sigh of relief and close out their losing position for a small loss. Then the trader that missed the boat the first time jumps in with both feet this time because they got the opportunity they missed back and they don’t intend on missing it again. It is a lesson learnt over years to buy in the dips [approximately 118 entities are now trading below book value]," it said.
"Aitken Spence, apart from the 120k shares taken in the market at LKR115.0, registered a 300k share crossing at LKR115.0 whilst a Confifi Hotels hit the renewed interest list after a 2.1 mn share block (constituting a 29.2% stake change) changed hands at LKR167.0. Hatton National Bank [Non-Voting] saw two crossings adding to 2.3 mn shares at LKR93.0.
"PC Holdings along with PC Pharma joined the top turnover list after 4.77 mn shares of the parent was taken on board at LKR12.7 whilst PC Pharma saw 4.78 mn shares being taken at LKR12.5 during the latter hours of trading. Interest was evident in John Keells Holdings, Carsons Cumberbatch and Nestle Lanka of the S&P SL20 index calibre.
"Kegalle Plantations highlighted the trading screen after a 93.6k shares were taken on board at LKR92. 0 whilst Lanka IOC too encountered a 198.5k share trade on board at LKR16.5 today. Finance sector players; Lanka Orix Leasing Leasing, Sampath Bank, Commercial Bank [Voting & Non-Voting} and LB Finance proved to be active," Softlogic Equity Research said.