‘Spot’ to make Rs 2 pyrrhic gain

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The administered ‘spot’ is expected to make a pyrrhic gain to strengthen by Rs 2 after nearly 26 months to close at Rs 358/363 to the US dollar in two way quotes today (Monday, 20 June), market sources told ‘Finance Today’.

They attributed the strengthening as being due to slack demand, made worse by the persistent fuel crisis which has gripped the country since at least the beginning of the year with no end in sight.

The last time the exchange rate (ER) made gains was on 28 April 2021, where it was artificially strengthened by Central Bank of Sri Lanka (CBSL) by between Rs 3 and 4 to be trading at Rs 199/200 to the dollar in two way quotes, where, however, trades were restricted to bank-client and not bank-bank, similar to the current state of affairs.

On 28 April 2021, the guided, market ER was the ‘spot’, while on the previous day 27 April, 2021, the market ER was one month’s forwards which closed at Rs 202/204 to the dollar in two way quotes.

Meanwhile, the guided benchmark market ‘spot’ administered since 13 May closed unchanged at Rs 360/365 to the US dollar in two way quotes for the 22nd consecutive market day to Friday (17 June), synchronising with last year’s performance, where then too the administered, coupled with an inflexible ‘spot’ in operation then, also closed unchanged for the 22nd consecutive market day to 17 June 2021 at Rs 199.75/200.25 to the dollar in two way quotes.

Meanwhile, on Friday, the administered market ‘spot’ was down by between 80.23 and 82.27 per cent (Rs 160.25-164.75) year on year (YoY), thereby causing cost push inflationary pressure as Sri Lanka is an import dependent economy;  sources said.

They further said that trades in the administered market ‘spot’ (Rs 360/365) were mainly restricted to ‘bank-client’ outright trades, while the interbank foreign exchange (FX) market was however dominated by swaps, which were outside the domain of the FX market for this purpose.

YoY to Friday, this administered market ‘spot’ has weakened by between 80.23-82.27 per cent (Rs 160.25-164.75), thereby causing cost push inflationary pressure as Sri Lanka is an import dependent economy.

In related developments, the administered ‘spot’ for official purposes, such as for trades involving CBSL, GoSL and/or CBSL, GoSL and the market, YoY to  Friday has depreciated by 80 per cent (Rs 159.89).

On Friday, the value of this official administered ‘spot’ was fixed at Rs 359.75 to the dollar, while a year ago it was Rs 199.86. Meanwhile, the straitjacketed, inflexible administered market ‘spot’ a year ago was fixed Rs 199.75/200.25 to the dollar in two way quotes, the 21st consecutive market day to 16 June 2021 that it has administratively remained unchanged at those levels, YoY.

Paneetha Ameresekere