Reserve position improves by USD 400 mn in April - ICRA Lanka | Daily News

Reserve position improves by USD 400 mn in April - ICRA Lanka

The Reserve position of the country improved by about USD 400 million by the end of April helped by the disbursement of the Foreign Currency Term Financing Facility (FCTFF) and purchase of forex from the market (USD 63 million). Total foreign currency obligations due for April was around USD 157 million according to ICRA Lanka monthly economic update for April.

In their outlook report for May it identifies that the top priority for the country is to get the pandemic situation under control.

“Inoculation numbers, daily tests, daily infections and daily deaths are key indices to keep an eye on.”

The expansion in the services sector experienced lately is expected to be disrupted somewhat in May and beyond as diminished mobility and loss in consumer confidence will be impacting the revenues. Industrial sector, on the contrary, has shown resilience during the previous waves, and therefore expected to perform better than the services sector. Pandemic induced supply shocks together with import controls may further fuel inflation fears.

“Investors may keep factoring this in the treasury market leading to continued pressure on the yields in the near term. Financial institutions may reevaluate their risk appetite if the pandemic situation keeps escalating which could affect the credit growth.”

Recovery in the major export market will help to keep the exports around the USD 1 billion mark. But rising commodity prices will make it difficult to keep a lid on the trade deficit.

Squeeze in the liquidity that prevailed during mid-March to mid-April forced a bank or some banks to borrow through the Standing Lending Facility, temporarily adding about Rs 30 billion per day on average to the money supply.

“Significant quantity of Treasury bond issues was left unabsorbed while the secondary market activity level rose recording the highest monthly volume since February 2019.”

T-bill yields in both the primary and secondary markets continued to rise.

Yields on the nearest-dated SLISBs (maturities in July this year) deteriorated while other ISBs recorded solid gains of over 100 bps after Sri Lanka signed FCTFF with China.

The CSE gained momentum in the first half of April touching two-month high on April 15 before losing much of the gains by month-end, only to close with just 1.22% and 0.65% advances in the ASPI and S&P20 respectively.

Apart from a minor inflow (USD 2 million) of capital to treasuries, the foreign participation remained almost nonexistent. On the other hand, foreign capital outflow (USD 19 million) continued in the equities market.

The Rupee continued to depreciate in the early half of April reaching a peak on April 8 to over LKR/USD 200 before abruptly appreciating close to LKR/USD 192 on April 20. Then it corrected back near to LKR/USD 200.