Reserves bleed $ 26M

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The country’s foreign reserves were depleted by US$ 25.85 million (Rs 9,331 million) on Wednesday (20 July) led by the settlements made in respect for the payment of ‘essential’ imports. Conversions are based on the benchmark but administered ‘spot’ value of Rs 361.03 to the US dollar as at Monday. Transactions between Central Bank of
Sri Lanka (CBSL) and Government of Sri Lanka (GoSL) are foreign reserves neutral. CBSL lacks transparency in its open market operations.

GoSL’s at least theoretical money printing borrowing costs (MPBCs) sharply decreased by 0.73 per cent (Rs 1,027.03 million) to
Rs 139,974.79 million on Wednesday due to buying pressure of riskless but low returns Treasury (T) Bills and T Bonds by investors in secondary market trading, rather than invest in the high returns private sector, the engine of growth, due to uncertainty.

GoSL’s face value (FV)MP debt  decreased by  0.06 per cent ( Rs 1,874 million) to
Rs 3,167,972.47 million
(Rs 3.1680 trillion) on Wednesday, thereby marginally defraying inflationary pressure. GoSL’s FVMP debt has been over
Rs three trillion for a record consecutive 10 market days to Wednesday due to a perennial lack of revenue.

Market was short for a record 212 market days to  Wednesday, with this shortfall increasing by 1.91 per cent (Rs 1,205 million) to 597,360 million, thereby virtually causing perpetual rate pressure. GoSL’s highest to the 215th highest FVMP debt has been registered for a record 215 market days to Wednesday. GoSL’s FVMP debt has been over
Rs 2 trillion for a record 121 consecutive market days to Wednesday because of 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 ‘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 ‘pot’.  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.

By Paneetha Ameresekere