‘Spot’ weakens by Rs 161-170

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The benchmark market ‘spot’ sharply weakened by five rupees in two way quotes to be trading at Rs 360/370 to the US dollar in interbank foreign exchange (FX) trading on Friday (28 April), amidst sustained uncertainty, made worse by China expressing its disappointment over Sri Lanka going to the IMF for a bailout, market sources told ‘Finance Today’.

Year on year (YoY) to Friday the market exchange rate (MER) has weakened by between Rs 161 -170 (80.90-85 per cent) in two way quotes, having closed administratively ‘stronger’ at Rs 199/200 to the US dollar in two way quotes on the benchmark ‘spot’ on 29 April 2021, thereby causing cost-push inflationary pressure as Sri Lanka is an import dependent economy.

From 28 April 2021 to 9 March 2022, a unique thing happened in the country’s interbank FX market, for the first time after the liberalisation of the economy on 21 July 1977, where the interbank FX market went virtually dead after Central Bank of Sri Lanka (CBSL) started fixing the ‘spot’, void of hardly any CBSL intervention in the interbank FX market. However, the exchange rate was once more liberalised 11 months later on 10 March 2022.

Meanwhile, the administered ‘spot’ was fixed at Rs 197.75 to the dollar in two way quotes by CBSL a year ago, compared to a weaker administered rate of Rs 341.85 to the dollar on Friday, down 72.87 per cent (Rs 144.10) YoY.

 Government of Sri Lanka’s (GoSL’s) at least theoretical money printing borrowing costs (MPBCs) increased by 4.25 per cent (Rs 5,404.49 million) to Rs 132,448.28 million on Friday due to selling pressure of Treasury  T Bills and T Bonds in secondary market trading to reinvest the accrued proceeds at the coming Wednesday’s Rs 97.5 billion T Bill auction on expectations of higher returns due to sustained, over 20 per cent inflation.

GoSL’s face value (FVMP) debt decreased by 0.66 per cent (Rs 18,483.97 million) to Rs 2,768,873.37 million (Rs 2.7689 trillion) on Friday, thereby marginally defraying demand-pull inflationary pressure as well.

Liquidity was uplift by Rs 26,602.97 million (US$ 78.73 million) on Friday, led by foreign reserves neutral transactions between the GoSL and CBSL at Wednesday’s administered  ‘spot’ value of Rs 337.95 to the  dollar. CBSL lacks transparency in its ‘open market operations’.

Money market was short for a record consecutive 157 market days to  Friday,  though this shortfall fell by 1.11 per cent (Rs 8,119 million) to Rs 722,611 million, nonetheless causing almost perennial rate pressure, CBSL data showed.

GoSL’s FVMP debt has been over two trillion rupees for a record consecutive 67 market days to Friday. GoSL’s highest to the 161st highest FVMP debt has been registered in the 161 consecutive market days to Friday, though not necessarily in a particular order.

By Paneetha Ameresekere