Yields slip on hopes of quick IMF deal and President’s pledge to stay on reform path

Bill yields continued their descent this week on optimism of a deal with the International Monetary Fund (IMF) sooner than expected, but the Central Bank failed again to sell the entire bill stock it offered at the auction. 

The yield of 3-month bills fell by 11 basis points to settle at 29.72 percent while the yield of the benchmark 12-month bills slipped 4 basis points to end at 27.67 percent. The 6-month bill yield remained unchanged at 28.67 percent. 

News reports on prospects of a possible deal with the IMF even without specific financing assurances from China rekindled hopes for an early breakthrough for the economy.
The Central Bank offered Rs.75.0 billion in bills, but accepted only Rs.53.5 billion, and kept the second phase of the auction open for another day on which it usually manages to reach somewhat close to what it offered.  

Meanwhile, President, Ranil Wickremesinghe said that the government managed to fulfill all the 15 prior conditions set by the IMF to qualify for the bailout facility, which included last week’s electricity tariff hike.

Under Wickremesinghe, Sri Lanka has made economic progress since last July, ending fuel and gas queues, restoring nearly all imports, and turning around both inflation and interest rates during the last few months. 

Wickremesinghe showed determination taking Sri Lanka through the reform path until its conclusion, though the local government election, which was scheduled to be held on March 9, could have put pressure on him politically to dissolve parliament and call for fresh general elections.  

Although Sri Lanka is cut off from foreign capital and bilateral markets, the Central Bank has been collecting sizable foreign currency from the domestic market.  The Cabinet has approved a repayment of around US$ 2.6 billion worth multilateral debt in the first six months of this year despite the debt standstill announced in 2022.