T-bill yields, which have been rising steadily since the yield ceilings were lifted in mid-September, are expected to stabilize in the coming weeks, after the central bank decided to hold key rates for the week. latest, likely bringing an end to the mad rush in government bond yields, according to ICRA Lanka Limited.
Yields on T-bills at primary auctions held since September 22, the first since the removal of benchmark yields, rose 116 basis points to 196 basis points over the three mandates, with benchmark yields rising from one year increasing the least 116 basis points. bps at 7.28 percent so far, in part due to the central bank’s rejection of all bids received in last week’s auction under six- and twelve-month bills, favoring three-month .
The Central Bank said last week that while some of the increases reflect a “market correction”, some were “excessive”.
“We could see a stabilization of Treasury yields over the next few weeks,” ICRA Lanka Limited, a rating agency, said in its latest edition of the Monthly Economic Watch titled “The economy recovers as the delta s ‘sag “.
As last week’s monetary policy decision approached, some in financial markets believed that the multi-week surge in Treasury yields would prompt the Monetary Board to raise rates again. But they were quickly disappointed after the rate-setting committee decided to maintain the current stance of monetary policy to support the economy, which is recovering after a month of restrictions linked to the virus. Hours after leaving rates stable, the central bank ignored claims that it should have been guided by the behavior of Treasury yields to determine the path of policy rates.
“Policy rates are a stable rate that you keep (and) Treasury bill rates can fluctuate. Thus, key rates do not follow Treasury bill rates. Key rates are not changed at the same time as Treasury bill rates, ”Central Bank Governor Ajith Nivard Cabraal said last week in response to a question on the subject.
While adding that sometimes the Monetary Board may take into consideration the behavior of Treasury bill yields when deciding policy rates, he added that “at the moment we believe the policy rates that have been set are appropriate” , in the context of the Sri Lankan economy.
Against this background, ICRA Lanka said that the worst variant of the Delta variant was behind the country, “Sri Lanka expects fairly modest and undisturbed economic performance in Q4”, as companies on the whole fell behind. also used to operating in the midst of the pandemic. overtime. Sri Lanka will also soon reach the milestone of 60% of its population fully vaccinated against the virus, helping the country resume normal activities after more than 18 months of decline.