May 2021

Interest Rates

Short-term rates

Figure 1: Treasury bill yield and money market rates

Notes: AWCMR- Average Weighted Call Money Rate,
SDFR- Standing Deposit Facility Rate, SLFR- Standing
Lending Facility Rate, T-bill yields are for the secondary market, ARR – simple average of daily repo rates
Source: CBSL

Excess money market liquidity gradually declined from ~LKR 150 to 115 a day. During this time, the CBSL reduced its treasury holdings by about LKR 27 Bn mopping up liquidity. Call and repo rates edged up by about 2-3 bps. Tendency for banks to use Standing Lending Facility (SLF) was persistent during May as well.

The T-bill yields in both primary and secondary markets remained stable during May. The market activity levels were relatively high. The CBSL maintained the yield cap on one-year notes at 5.18% which also had a significantly low bid acceptance ratio (~3%).

Long-term rates

Figure 2: Yield curve of treasuries

Notes: Yields are based on the weekly average prevailed at the last week of the month, Shorter end – less than 2Y, mid/intermediate tenor – 2 to 10Y, longer tenor – above 10Y, Source: CBSL

There was only a smaller bond auction held during the month which offered about LKR 20 Bn – a significantly lower quantity than the usual. Secondary market volumes rose from month ago levels while shifting the yield curve up marginally.

Figure 3: AWPR[1] and 3M T-bill yield

Note: T-bill yield for secondary market, Source: CBSL

AWPR went through a correction phase after seeing a sharp rise in the last week of April.

Private credit grew moderately by over LKR 57 Bn in April. During festive season, reserve money tends to expand faster but private credit may not necessarily expand commensurately. With the advent of the third wave, it is likely that the momentum of the credit expansion in May might have been affected.

Read ICRA Lanka’s report on the impact of low interest rates on the markets.

International rates

Figure 4: Month open international lending rates

Notes: The SOFR Averages are compounded averages of the SOFR over rolling 180-calendar day periods.

Source: New York Federal Reserve and

US treasury yields rose amid US inflation hitting 13-year high. Rising yields triggered investors to sell their equity positions and move back to treasuries. In the Eurodollar market, USD LIBOR (6M) edged up but SOFR (6M) dropped further.

Yields on SLISBs improved during the month. USD 1 Bn ISBs will be maturing end of next month.

External Sector

Merchandize exports were USD 799 Mn in April [1]. Generally, April is a weaker month for exports and during a typical month it comes close to USD 790 Mn. Remittances grew 7%(Y/Y) to USD 460 Mn in May. The CBSL’s net purchasing of forex amounted to just USD 3.5 Mn during the same period. In the meanwhile, Capital flight from treasuries (USD 8 Mn) and equities (USD 19 Mn) continued.

Figure 5: Gross official reserves (Mn USD)

Source: CBSL

Proceeds from the April SLDB auction was used to settle the maturing USD 694 Mn tranche in May. This brought the overall reserves back almost on par with March levels.

Figure 6: Exchange rate and outstanding forward volume

Source: CBSL

Rupee was hovering around 200 LKR/USD and broadly stable during the month. In the interbank forex market spot volumes were modest while forward volumes marginally declined. Forward premiums remained inverted during the month.

Prices & Wages

Figure 7: CCPI and Nominal Wage Rate Index of the informal private sector (Y/Y)

Notes: WRI (100=2012), CCPI (100=2013), Sources: CBSL, CSD

Wage growth moderated in April with Industries winding down their operations ahead of new year holidays. In the meanwhile, agriculture wages continued to recover.

Headline inflation in May rose to 4.5%, the highest since April last year. This is due to notable increase in both food (9.9%, Y/Y) and non-food inflation (2.2%, Y/Y) of which non-food inflation records the highest since March last year.


Domestic Market

Figure 8: ASPI (M/M)

Source: CSE

The CSE remained somewhat upbeat throughout the month as share market closed with a 2.7% and 3.82% gain in the ASPI and S&P20 respectively. Foreign investors continued to be net sellers, and overall net foreign outflow increased marginally to LKR 3.8 Bn (~USD 19 Mn). Most of GICS sectors were able to make gains and the best performing sectors were Healthcare and Diversified Financials. Overall PBV (Price-to-Book-Value) increased from 1.12 to 1.14 favoring sellers.

Figure 9: GICS sector performance- May

SectorIndex Points Gained
Health Care Equipment & Services159
Diversified Financials77
Food & Staples Retailing44
Telecommunication Services26
Capital Goods24
Consumer Durable21
Automobiles & Components13
Commercial & Professional Services10
Food Beverage & Tobacco6
Real Estate1
Consumer Services-0.4
Household & Personal Products-5

Source: CSE

Global Markets

In the US markets, stocks traded in a narrow range with technology and other high-valuation companies coming under selling pressure as a result of mixed economic data. Expectation of lasting inflation dampened the investor optimism as Fed rate hike could steer them away from equities to treasuries. European markets led the gains with France, Germany and the UK being top three performers. However, Asian markets continued to be affected by surging COVID cases.


Figure 10: Crude oil price

Source: Bloomberg quoted in CBSL

Global Brent crude oil prices continued to increase throughout the month of May as it ended at a two-year high of over USD 69 a barrel. The rise in prices continued to be driven by robust demand stemming from US and European markets as a result of the success of vaccine programmes. The daily global demand is expected to reach 100 million barrels in the third quarter, and OPEC+ counties are expected to raise production to meet the demand.

Figure 11: Tea (All Elevations) price and quantity sold at weekly auctions

Source: Forbes & Walker

Global tea prices crashed in May despite relatively healthy supply levels unhampered by the lockdowns in South Asian source markets. Prices in USD dipped over 6% in the Colombo auctions over the course of the month.

Figure 12: Rubber price weekly auctions

Note: Price of Latex 4X

Source: RRISL

Rubber prices reached a one-year peak in the month of May due to supply constraints stemming from surging COVID cases and the resulting lockdown procedures in South Asian countries. Furthermore, increasing demand coming from improved industrial activity in other regions have also contributed to the price hikes.

Figure 13: Coconut price weekly auctions

Source: CDA

Weekly coconut auctions, which has been suspended since September last year, resumed in May. Prices dropped by about 3 rupees per nut likely as a result of drop in nut quality due to adverse weather condition that prevailed during the month.

Figure 14: Metal price index (2016=100)

Notes: Base metals index includes Aluminum, Cobalt, Copper, Iron Ore, Molybdenum, Nickel, Tin, Uranium, and Zinc, precious metals index includes Gold, Silver, Palladium, and Platinum

Source: IMF

Gold was buoyant in May leading to around 7% gains reaching USD 1900 per troy ounce. Weaker dollar and sustained inflation fears are currently fueling demand for gold.

Global base metal prices peaked and remained stable during the month. The prices surged strongly this year as lockdown restrictions in China have eased causing companies to stack up raw materials. To curb speculative buying, Chinese regulators urged domestic commodity companies to maintain “normal market orders” [2].

Read ICRA Lanka’s report on the implications of rising commodity prices for Sri Lanka.

Real Sector

Figure 15: PMI deviation from point of neutrality (Index points)

Notes- negative values indicate sector is generally contracting on a month-on-month basis while positive values indicate the sector is expanding. The strength of contraction or expansion is manifested by the magnitude of the figure. Source: CBSL

PMI for Manufacturing and Services further deteriorated in May on account of resurgence of COVID-19 cases across the island recording the lowest index values since October last year. Fast escalation of the third wave have disrupted production activities of the industrial sector and business activities of the services sector.

Outlook for June

With the current pandemic situation showing no sign of dissipation, ICRA Lanka do not expect businesses to operate with their potential or near potential capacity. The impact will be felt more in the services sector than in industrial sector.

Fuel price hike and its spillover effect will force inflation rate up. This will keep pressure on the treasury yields in the near term.

As a consequence of subdued economic activity level, the credit growth may not be able to maintain momentum in June.

High oil and base metal prices combined with falling tea prices will further compound the external sector challenges. We expect the USD 1 Bn ISBs maturing in July to be serviced out of the reserves which will put pressure on the reserve position of the country.

Rating Actions

Following rating actions were taken by ICRA Lanka during the month of May.

Visit to read the rating rationales.

IssuerIssueActionPrevious RatingCurrent Rating
Asia Asset Finance PLCIssuer RatingReaffirmed[SL]BBB + (Negative)[SL]BBB + (Stable)
Asia Asset Finance PLCAsset backed secure debenture programReaffirmed[SL]A- (Negative)[SL]A- (Stable)
Commercial Credit and Finance PLCIssuer RatingReaffirmed[SL]BBB (Negative)[SL]BBB (Stable)
Commercial Credit and Finance PLCGuaranteed Redeemable Debenture ProgrammeAssignedN/A[SL]AA(CE) (Stable)
Commercial Credit and Finance PLCCommercial Paper Progamme  ReaffirmedN/A[SL]A3  
Senfin Asset Management (Pvt) LtdIssuer RatingAssignedN/A[SL]BBB + (Stable)
LOLC Ceylon Holdings LimitedGuaranteed Redeemable Debentures ProgrammeAssignedN/A[SL]A (Stable)
CAL Investment Grade FundMutual Fund RatingRevised[SL]Amfs  [SL]A+mfs  
Sanasa Development Bank PLCIssuer RatingReaffirmed[SL]BBB (Stable)[SL]BBB (Stable)
Sanasa Development Bank PLCGuaranteed Redeemable Debenture Programme-Type BWithdrawn[SL]A+(SO) Stable  N/A  
Sanasa Development Bank PLCGuaranteed Redeemable Debenture Programme-Type DWithdrawn[SL]A-(SO) (Stable)N/A

[1] AWPR is calculated based on the submissions made by the commercial banks to the CBSL on the rates offered to customers who borrowed more than LKR 10 Mn for less than three months.


This publication has been prepared by ICRA Lanka solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ICRA Lanka does not represent that it is accurate or complete. ICRA Lanka does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication.