Sri Lanka stocks fall after central bank’s hawkish policy stance

Sri Lank stock fell 0.99 percent on Thursday, ending a three-session gaining streak, after the country’s central bank in a surprise reversed its monetary policy stance to hawkish from dovish to ease the pressure on the rupee, brokers said.

The central bank, which has maintained an accommodative monetary policy with record low interest rates, from last year, unexpectedly tightened the key policy rates by increasing them by 50 basis points.

Colombo All Share Price Index (ASPI) lost 82.77 points to close at 8,260.08 while S&P SL20 index of more liquid stocks fell 0.86 percent or 26.35 points to close at 3,047.07.

“It was a knee-jerk reaction” a Colombo-based stock broker told Media.

“Nobody expected a rate hike and now investors might consider fixed assets as well.”

Investors had been largely shifting their funds to risky assets from fixed instruments due to lower interest rate.

Sri Lanka stocks have been on the rise partly due to record low-interest rates, excess liquidity in money markets, and some businesses being disrupted due to import controls triggered by money printing. The trend of net foreign selling has been continuing since early last year.

A statutory reserve ratio was also raised by 2 percent which may mop up an estimated 120 billion rupees from banks’ rupee reserves.

Analysts said the market was keen on the central bank’s stance on the rupee exchange rate. A speculation on the currency devaluation has boosted the market led by export companies.

However, the central bank on Thursday said there was no change in its official exchange rate.

Meanwhile, Central Bank Governor W D Lakshman said at the Monetary Policy review held on Thursday (19) Sri Lanka will place ceilings on dollar deposits of exporters to reduce the gap between rupee and dollar deposit rate and rupee loans.

“Our intention is to impose these caps on export earnings that are held in foreign currency accounts,” Governor Lakshman said.

The fall was led by Expolanka, which has a significant export component in its business, LOLC Holdings and LOLC Development and Finance.

The day’s turnover was 5.4 billion rupees, well over this year’s average daily turnover of 3.9 billion rupees.

Foreign investors bought a net 24.9 million worth of shares on Tuesday, and the market has suffered a net foreign outflow of over 36.08 billion rupees so far this year.

The bourse saw 53 stocks gaining against 126 falling on Thursday.

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