Money Printing Tops Record Rs 3Trillion

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Government of Sri Lanka’s (GoSL’s) face value money printing (FVMP)debt passed the Rs three trillion mark for the first time on Tuesday, increasing by 8.80 per cent (Rs 255,803.62 million) to Rs 3,163,308.50 (Rs 3.16 trillion) due to a persistent lack of revenue.

However, this increase was non-demand pull inflationary as it was led by having been used to pay for ‘essential’ imports, thereby aiding in the upping of liquidity by Rs 274,311.62 million (US$ 761.34 million) during trading on Tuesday.  Conversions are based on the benchmark, but officially administered ‘spot’ which was fixed at Rs 360.90 to the US dollar as at Thursday (23 June).

Meanwhile, the increase in GoSL’s at least theoretical MP borrowing costs (BCs) relative to the acceleration of its FVMP debt, decelerated by 2.85 per cent (Rs 2,820.55 million) to Rs 101,933.87 million on Tuesday, due to selling pressure of Treasury (T) Bills and T Bonds in secondary market trading, to reinvest in yesterday’s (Wednesday 29 June) Rs 77.50 T Bill auction with expectation of higher returns, with inflation at over 40 per cent. High inflation is a spur to higher yields/interest rates. Market’s net short fall increased by 3.07 per cent (18,508 million) to 621,345 million on Tuesday, data showed.

GoSL’s FVMP debt has been over Rs two trillion for a record 105 consecutive market days to Tuesday due to an almost perennial lack of revenue. The market has been short for a record 195 market days to Tuesday. GoSL’s highest to the 199th highest FVMP debt has been registered for a record 199 market days to Tuesday.

 GoSL’s FVMP debt is equivalent to the totality of 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.

‘Spot’ trades are settled after two market days from the date of transaction. CBSL, the steward of GoSL debt and its foreign reserves deals in ‘spot’. The ‘spot’ is administered to minimize GoSL’s foreign debt in rupee terms and lower the cost of ‘essential’ imports, while ‘essential’ imports are met from the country’s foreign reserves and not from the market to prevent further depreciative pressure on the rupee as Sri Lanka is an import dependent economy. CBSL lacks transparency in its open market operations.  Transactions between CBSL and GoSL are foreign reserves neutral.

By Paneetha  Ameresekere