Uncertainty causes buying pressure of Treasuries

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Government of Sri Lanka’s (GoSL’s) at least theoretical money printing borrowing costs (MPBCs) decreased by 4.86 per cent (Rs 7,005.64 million) to Rs 137,066.10 million on Monday (25 July) due to buying pressure of riskless but low returns in Treasury (T) Bills and T-Bonds in secondary market trading, rather than invest in the high returns private sector, the engine of growth, due to sustained uncertainty.

 GoSL’s  face value (FV) MP debt increased by 0.02 per cent (Rs 637.62 million) to Rs 3,145,357.59 million (Rs 3.1454 trillion) on Monday, thereby marginally defraying demand pull inflationary pressure. GoSL’s FVMP debt has been over Rs three trillion for a record consecutive 13 market days to Monday.

Liquidity uplift was Rs 20,518.62 million (USD 56.73 million) on Monday due to the settlement of transactions between the GoSL and Central Bank of Sri Lanka (CBSL). Conversions are based on the benchmark but administered ‘spot’ value of Rs 361.67 to the US dollar as at Thursday. Transactions between CBSL and the GoSL are foreign reserves neutral. CBSL lacks transparency in its open market operations.

  Market was short for a record 215 market days to Monday, though this shortfall decreased by 3.36 per cent (Rs 19,881 million) to 571,867 million, thereby virtually causing perpetual rate pressure. GoSL’s highest to the 218th highest FVMP debt has been registered for a record 218 market days to Monday.

 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. 

By Paneetha  Ameresekere