Money Printing Rises to Rs 2.784 Trillion

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Government of Sri Lanka’s (GoSL’s) non-demand-pull inflationary face value money printing (FVMP) debt increased by
Rs 27,103.69 million due to  a sustained lack of revenue, thereby increasing GoSL’s FVMP debt as a whole by 0.98 per cent to
Rs 2,783,959.06 million (Rs 2.7840 trillion) on Friday.

 GoSL’s at least theoretical MP borrowing costs (BCs) increased by 6.26 per cent (Rs 7,830.15 million) to Rs 132,966.18 million on Friday due to a combination of panic selling of Treasury (T) Bills and T Bonds in secondary market trading, because of the current political uncertainty, coupled with plans to reinvest the accrued proceeds at Wednesday’s Rs 92.5 billion T Bill auction on expectations of higher returns due to over 20 per cent inflation.

Liquidity was drained by Rs 28,316.69 million (US$ 83.28 million) during the course of Friday’s trading led by the settlements of swaps between GoSL and Central Bank of Sri Lanka (CBSL) and due to essential imports made from the country’s foreign reserves, GoSL’s foreign debt servicing commitments and/or swaps between CBSL and the market. Transactions between GoSL and CBSL are foreign reserves neutral.  Conversions are based on the administered benchmark ‘spot’ rate of Rs 3,401 to the US dollar as at last Wednesday (6 May).

Money market was short for a record consecutive 160 market days to  Friday, with this shortfall increasing  by 0.17 per cent (Rs 1,213 million) to Rs 708,767 million, thereby causing almost perennial rate pressure, CBSL data showed.

GoSL’s FVMP debt has been over Rs 2 trillion for a record consecutive 70 market days to Friday. GoSL’s highest to the 164th highest FVMP debt has been registered in the 164 consecutive market days to Friday, though not necessarily in a particular order. 

CBSL holds exclusive MP rights. GoSL’s FVMP debt is equivalent to the FV holdings of CBSL’s T Bills and T Bonds. Investments in
T Bills and T Bonds are risk free, because, if GoSL’s is unable to honour such debt repayments, CBSL is mandated to print demand pull inflationary money and repay such creditors.

By Paneetha Ameresekere