Inflationary money printing up Rs 20B

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Inflationary money printing (MP) increased by nearly Rs 20 billion (Rs 19,663 million/Rs 19.7 billion) due to inadequate Government of Sri Lanka (GoSL) revenue on Friday, latest Central Bank of Sri Lanka (CBSL) data showed.

Consequently, GoSL’s face value money printing (FVMP) debt as a whole increased by  one per cent (Rs 28,788.13 million) to Rs 2,912,817.98 million (Rs 2.9128 trillion) on Friday, of which an equivalent US$ 25.28 million (Rs 9,125.13 million) were drained  from the country’s foreign reserves to pay for ‘essential’ imports. Conversions are based on the benchmark, but officially administered ‘spot,’ which was fixed at Rs 360.90 to the US dollar as at Wednesday (22 June). Subsequently, market’s net short fall decreased by 3.08 per cent (19,633 million) to 619,196 million on Friday, statistics showed.

Meanwhile, GoSL’s at least theoretical MP borrowing costs (BCs) relative to the increase in its FVMP debt accelerated by 8.50 per cent (Rs 8,133.80 million) to Rs 103,871.70 million on Friday, led by selling pressure of riskless, relatively low returns Treasury (T) Bills and T Bonds in secondary market trading, to reinvest in tomorrow’s (Tuesday, 28 June) record high Rs 150 billion T Bond auction on expectations of higher yields due to inflation being at a record high of over 40 per cent. Higher inflation leads to both higher interest rates and higher yields in order to cap inflation.

GoSL’s FVMP debt has been over Rs 2 trillion for a record 103 consecutive market days to Friday due to an almost perennial lack of revenue. The market has been short for a record 193 market days to Friday. GoSL’s highest to the 196th highest FVMP debt has been registered for a record 197 market days to Friday.

GoSL’s FVMP debt is equivalent to the totality of Central Bank of Sri Lanka’s (CBSL’s) T Bill and T Bond holdings. MP is the exclusive right of CBSL. GoSL’s MPBCs are prorated to the outcome in secondary market trading of T Bills and T Bonds on the reference day.

By Paneetha Ameresekere