Directives do not encourage transparency regarding GoSL-CBSL transactions
By Paneetha Ameresekere
The settlement of a Government of Sri Lanka (GoSL) sale of US$ 30.64 million (Rs 5,718 million) to Central Bank of Sri Lanka (CBSL) on Friday (26 June) uplifted net excess liquidity by Rs 718 million (0.39 per cent) to Rs 185,346 million. Conversions are based on the middle rate of the benchmark ‘spot’ as at 4p.m. on Wednesday, which was Rs 186.60 to the US dollar.
CBSL sources admitted to the reporter that CBSL lacks transparency in reporting such transactions between CBSL and GoSL in CBSL’s open market operations, which is due to the lack of hierarchical directives to make these details known to the public.
Consequently, GoSL retired maturing face value money printing (FVMP) debt of Rs 5,000 million whilst simultaneously deflating demand-pull inflationary pressure by such an action and reducing such liabilities as a whole by 1.47 per cent to Rs 335,992.88 million by Friday.
Subsequently GoSL’s MP borrowing costs declined by Rs 512.51 million (17.95 per cent) to Rs 2,342.16 million on Friday due to market appetite for risk free Treasury (T) Bills and T Bonds in secondary market trading due to uncertainty.
GoSL’s FVMP debt is equivalent to CBSL’s holdings of FV T Bills and T Bonds. CBSL prints money and lends to the GoSL due to a lack of revenue thereby increasing GoSL debt while simultaneously feeding demand-pull inflationary pressure if such printed money ends up in the hands of GoSL and not CBSL, where in the case of ending up with CBSL is due to actions such as GoSL buying the required dollars from CBSL for foreign debt servicing commitments. CBSL is the steward of GoSL debt and the country’s foreign reserves. MPBCs are largely prorated to the weighted average yields fetched in secondary market trading of T-Bills and T-Bonds.
‘Spot’ trades are settled after two market days from the date of transaction. The market is avoided to meet GoSL’s foreign debt servicing commitments in fear this may cause depreciative pressure on the ‘spot’ (rupee) leading to demand-pull inflationary pressure as Sri Lanka is an import-dependent economy.