Capital Market Players predicted that the low-interest rate regime currently seen would continue and that a rate cut of about 50 basis points by the Central Bank is still possible.
Prominent market players made these observations speaking to Echelon on a webinar series titled Blood on The Street on July 24. Players felt that it was unlikely that the government would default on any debt obligation.
Executive Director Research CT CLSA Sanjeewa Fernando said “overnight liquidity went to Rs 209 billion in late June. That is historically very high. Yesterday the whole system parked Rs 132 billion with the Central Bank at 4.5 percent. Banks are not lending out. Many parties in the economy including the President would prefer to see this money parked with economic agents who are currently struggling to come out of this scenario. Credit growth is not picking up.”
“We have inflation at 6.3 percent and 12 month Treasury bill yield went to 4.6 percent. We are looking at negative real interest rates. Banks need to understand you can’t play this game on a continuous basis.” “The first customers who will approach the bank will be the ones in the CRIB and banks should manage this. Cutting rates and releasing liquidity is not what is required now. You need to identify the exact sectors that require finance and ensure that they get it.”
Fernando called on the general public to take advantage of the low-interest rate regime.
Head of Research Capital Alliance Udeeshan Jonas said that liquidity was in excess. Jonas said that due to the uncertainty businesses are not borrowing for investment. “Even the banks are reluctant to lend to consumers because of credit quality and that is why the money that is flowing in is going into financial securities pushing down the yields. We believe this interest rate regime will continue and hence we believe that rates will come down by another 70-80 (T-Bill) basis points.” Jonas felt that due to the output gap predicted in the next 4 quarters the Central Bank would be expected to continue an easing monetary stance.
Head of Research Bartleet Religare Securities Nikita Tissera commended the government on its handling of the health aspect of the spread of the Coronavirus. Tissera felt that from global experience even countries like Sri Lanka that handled the first wave well like Singapore and Israel would still need to be vigilant on preventing a second wave. Tissera noted that the confirmed cases in Sri Lanka all come from clearly identifiable clusters.”
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