‘Spot’ weakens by Rs 100

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By Paneetha Ameresekere

The benchmark ‘spot’ weakened by Rs 5 (1.67 per cent) to Rs 295/305 to the US dollar in two way quotes in the interbank foreign exchange (FX) market on Friday led by uncertainty after a local bank defaulted to another local bank a dollar swap which matured on the previous day Thursday, market sources told ‘Ceylon Today.’

A year ago the market exchange rate in interbank FX trading fetched a stronger value of Rs 199/200 to the dollar in two way quotes in one week’s forwards, down Rs 96-100 ( 48.24-50 per cent) in two way quotes year-on-year to Friday. A weak exchange rate causes cost push inflationary pressure as Sri Lanka is an import dependent economy. ‘Spot’ trades are settled after two market days of trading.

The country’s foreign reserves were poorer by US$ 199.92 million (Rs 56,062.59 million) led by the settlements of Government of Sri Lanka’s (GoSL’s) foreign debt servicing commitments and the import of essentials on Friday  at the administered and discounted ‘spot’ price of Rs 280.42 to the dollar as at Wednesday. CBSL however is not transparent in its open market operations.

GoSL’s face value money printing (FVMP) debt increased by 0.74 per cent (Rs 18,089.59 million) to Rs 2,466,107.43 million (Rs 2.4661 trillion) on Friday due to a persistent lack of revenue. But this increase was non-demand pull inflationary as it was used to meet the above external commitments.

GoSL’s highest to the ninth highest FVMP debt has been recorded in the nine consecutive market days to Friday, vis-à-vis Rs 2.4700 on Wednesday, Rs 2.4661 trillion on Friday, Rs 2.448 trillion on Thursday, Rs 2.4070 trillion on Tuesday, Rs 2.3967 trillion last Monday (21 March), Rs 2.3888 trillion last Friday (18 March), Rs 2.3724 trillion last Wednesday (16 March), Rs 2.3375 trillion last Tuesday (15 March) and Rs 2.3333 trillion on 14 March, respectively. Thursday 17 March was a Poya holiday to the market.

Further, GoSL’s FVMP debt has been over Rs two trillion for a record consecutive 45 market days to Friday.  Also, GoSL’s highest to the 139th highest FVMP debt has been registered in the 139 consecutive market days to Friday, though not necessarily in a particular order. 

GoSL’s at least theoretical MP borrowing costs (MPBCs) increased by 7.93 per cent (Rs 5,287.23 million) to Rs 71,946.47 million on Friday due to secondary market selling pressure of Treasury (T) Bills and T Bonds in secondary market to reinvest in tomorrow’s and Wednesday’s T Bond and T Bill auctions due to rate pressure caused by over 20 per cent inflation, coupled with protracted uncertainty. 

Money market was short for  a record consecutive 135 market days to Friday, with this shortfall increasing  by  6.10 per cent (Rs w37,973 million) to Rs 660,650 million, thereby   causing  almost perennial rate pressure.