Govt’s MPBCs reduced

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The reduction in the Government of Sri Lanka’s (GoSL) at least theoretical money borrowing costs (MPBCs), relative to the fall in its face value (FV) MP debt, accelerated by 1.14 per cent (1,794.76 million) to Rs 155,925.87 million on Wednesday (21) due to sustained market preference to invest in risk free and high returns Treasury T-Bills and T Bonds for the third consecutive market day rather than lend to the private sector.

GoSL’s demand-pull inflationary face value (FV) MP debt decreased by Rs 20,084 million (0.12 per cent) to Rs 3,243,790.82 million (Rs 3.2438 trillion) on Wednesday, thereby marginally defraying demand-pull inflationary pressure as well.

Liquidity increased by Rs 39,118 million (US$ 107.79 million) during trading on Wednesday led by transactions between the GoSL and Central Bank of Sri Lanka (CBSL). Conversions are based on the benchmark, albeit administered “spot” value of Rs 362.90 to the US dollar as at Monday (19).

Market was short for a record 256 market days to Wednesday, though this shortfall decreased for the third consecutive market day, with  Wednesday’s fall being  by 3.47 per cent (Rs 19,034 million) to Rs 529,036 million, nonetheless causing  sustained rate pressure.

 Meanwhile, GoSL’s highest to the 259th highest FVMP debt has been recorded in the 259 consecutive market days to Wednesday. GoSL’s FVMP debt has been over three trillion rupees for a record consecutive 54 market days to Wednesday 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. 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