Foreign Reserves drop by $21.49M

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The country’s foreign reserves haemorrhaged by USD 21.49 million (Rs 7,790 million) yesterday (19) led by the settlement of payments made for “essential” imports. Conversions are based on the benchmark, albeit administered “spot” value of Rs 362.45 to the US dollar as at Thursday (15).

The fall in Government of Sri Lanka’s (GoSL) at least theoretical money printing borrowing costs (MPBCs) vis-à-vis  the decline in its face value (FV) MP debt accelerated due to market preference to invest in risk free and high returns Treasury (T) Bills and T Bonds at yesterday’s trading.

Consequently GoSL’s MPBCs declined by 3.68 per cent (Rs 6,101.74 million) to Rs 159,527.32 million, whereas its FVMP debt fell by a mere 0.07 per cent (Rs 2,311million) to Rs 3,261,065.82 million (Rs 3.2611 trillion), thereby marginally defraying demand-pull inflationary pressure as well at yesterday’s trading.

The market was short for a record 254 market days to yesterday, though this shortfall decreased by 0.98 per cent (Rs 5,479 million) to Rs 551,103 million, nonetheless causing  sustained rate pressure. Meanwhile, GoSL’s highest to the 257th highest FVMP debt has been recorded in the 257 consecutive market days to yesterday. GoSL’s FVMP debt has been over Rs three trillion for a record consecutive 52 market days to yesterday due to a sustained lack of revenue.

 Transactions between CBSL and 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. Central Bank of Sri Lanka, 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