Market short for record 199 days

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Market was short for a record 199 market days to Monday (4), though this shortfall decreased by 2.29 per cent (Rs 14,851 million) to 633,484 million, Central Bank of Sri Lanka (CBSL) data showed. This shortfall is met via money printing (MP), while the cause of it is heavy Government of Sri Lanka (GoSL) borrowing.

This reduction in market’s net shortfall however was aided by the settlement of GoSL-CBSL transactions worth Rs 40,785.71 million (US$ 113.33 million) that took place during trading on Monday. Conversions are based on the administered ‘spot’ value which was Rs 359.79 to the US dollar on Thursday.

Consequently, GoSL’s face value (FV) MP debt decreased by 0.87 per cent (Rs 25,934.71 million) to Rs 2,969,150.11 million (Rs 2.969 trillion), thereby marginally defraying demand-pull inflationary pressure ‘as well,’ on Monday.

Meanwhile, the reduction in the value of GoSL’s at least theoretical MP borrowing costs (BCs), relative to the reduction in GoSL’s FVMP debt, accelerated by 2.46 per cent (Rs 2,767.28 million) to Rs 109,547.11 million due to buying pressure in secondary market trading of riskless and low returns Treasury (T) Bills and T Bonds by investors, rather than invest in the high returns private sector, the engine of growth, due to sustained uncertainty on Monday.

GoSL’s highest to the 203rd highest FVMP debt has been registered for a record 203 market days to Monday. GoSL’s FVMP debt has been over Rs 2 trillion for a record 109 consecutive market days to Monday due to an almost perennial lack of revenue. 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 minimise 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