Inflationary money up Rs 7.5 B

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The country’s demand pull inflationary face value money printing (FVMP) debt increased by Rs 7,454 million on Tuesday (6 September), due to a sustained lack of revenue.

Consequently,  Government of Sri Lanka’s (GoSL’s)  FVMP debt as a whole increased by 0.26 per cent (Rs 8,436 million) to  Rs 3,215,464.89 million (Rs 3.2155 trillion) on Tuesday.

Nonetheless,  GoSL’s at least theoretical MP borrowing costs (BCs) fell by 0.91 per cent (Rs 1,395.28 million) to Rs 151,150-545.33 million  on Tuesday  due to sustained buying pressure of Treasury (T) Bills and T-Bonds in secondary market trading for the second consecutive market day because of higher yields offered, led by record high inflation.

The country’s foreign reserves declined by US$ 2.72 million (Rs 982 million) on Tuesday led by the settlement payments made for ‘essential’ imports. Conversions are based on Friday’s administered benchmark ‘spot’ value of Rs 361.45 to the US dollar.

Market was short for a record 245 market days to  Tuesday, though this shortfall decreased for the second consecutive market day, with Tuesday’s fall being by 1.28 per cent (Rs 7,454 million) to Rs 576,281 million, nonetheless causing  sustained rate pressure.  GoSL’s FVMP debt has been over Rs three trillion for a record consecutive 43 market days to Tuesday due to a sustained lack of revenue.  Also, GoSL’s highest to the 248th highest FVMP debt has been registered for a record 248 market days to Tuesday.

Transactions between the CBSL and the GoSL are foreign reserves neutral and CBSL which administers daily open market operations; lacks transparency. 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.

By Paneetha  Ameresekere