Due to CBSL Intervention: ‘Spot’ strengthens by Rs 11-10
By Paneetha Ameresekere
The benchmark ‘spot’ which came into the limelight in interbank foreign exchange (FX) trading after a lapse of 44 days last Friday due to controls being lifted, nonetheless sharply strengthened by between Rs 11-10 in two way quotes to be trading at Rs 192/194 to the US dollar at 4 p.m., market sources told this reporter.
“Central Bank of Sri Lanka (CBSL), which supervises the interbank FX market, was offering the market (licensed commercial banks (LCBs)) dollars at discounted rates of between Rs 192 and Rs 194 each, that’s the reason for Friday’s rupee strengthening,” they said.
However, the sustained spread of 200 cents between the ‘buy’ and ‘sell’ quotes in the ‘spot’ is an indication of uncertainty.
Last month, led by Government of Sri Lanka’s (GoSL’s ) foreign debt servicing commitments, saw the country’s foreign reserves poorer by $525.30 million over its end February (2021) value, official data showed.
CBSL further said that in the calendar year to 4 April 2021 the country’s foreign reserves were drained by nearly $1,200 million due to GoSL’s foreign debt servicing commitments alone.
Meanwhile, on the previous day Thursday, the popular market exchange rate (MER) in interbank FX trading was one month’s forwards due to controls by CBSL/GoSL to rein inflation as Sri Lanka is an import dependent economy and GoSL’s foreign borrowing costs. It was trading at Rs 203/204 to the dollar in two way quotes at 4 p.m. on Thursday. ‘Spot’ trades are settled after two market days from the date of transaction.
GoSL’s money printing borrowing cost (MPBCs) sharply increased for the second consecutive market day to Friday, this time by 0.66 per cent (Rs 141.09 million) to Rs 21,592.66 million due to the market’s (LCBs and primary dealers (PDs)) preference to invest in the risky, high returns bourse, by selling low returns riskless Treasuries in secondary market trading, rather than lend (LCBs) to the high returns growth engine, the private sector, due to continued uncertainty.
CBSL’s face value money printing (FVMP) assets decreased by Rs 3,600.29 million (0.39 per cent) to Rs 928,781.65 million on Friday, thereby marginally subjugating demand-pull inflationary pressure as well.
GoSL’s FVMP debt has been over Rs 0.5 trillion for a record 110 consecutive market days to Friday due to a lack of revenue.
Settlement/s of transactions pertaining to CBSL’s swaps with the market (LCBs) and/or GoSL’s dollar sales to and/or swaps with CBSL, saw liquidity being appreciated by Rs 10,208.29 million (US$ 51.06 million) on Friday. Conversions are based on CBSL’s administered/indicative ‘spot’ rate on Monday which was Rs 199.91 to the dollar.
Consequently, net excess liquidity increased by 8.91per cent (Rs 6,608 million) to Rs 80,788 million on Friday. Transactions between GoSL and CBSL are foreign reserves neutral.