Inflationary Expectations drive MPBCs

By Paneetha Ameresekere | Published: 2:00 AM Oct 22 2021

By Paneetha Ameresekere

Government of Sri Lanka’s (GoSL’s ) at least theoretical money printing borrowing costs (MPBCs) increased by 0.49 per cent (Rs 292.52 million) to Rs 60,513.47 million yesterday due to selling pressure of Treasury (T) Bills and T Bonds in secondary market trading, driven by inflationary expectations because of domestic and external sector developments yesterday. 

GoSL’s face value (FVMP) debt increased for the fifth consecutive market day to yesterday, this time by Rs 1,281 million (0.07 per cent) and wholly nondemand pull inflationary, nonetheless increasing GoSL’s FVMP debt to a new record high of Rs 1,742,950.03 million (Rs 1.7430 trillion). GoSL’s FVMP debt has been over Rs one trillion for a record consecutive 63 market days to yesterday due to a lack of revenue. 

Money market was short for the thirty first consecutive market day to yesterday thereby causing persistent rate pressure, with market shortfall increasing by 1.74 per cent (Rs 2,939 million) to Rs 171,770 million. Liquidity decreased by a massive Rs 4,220 million (US$ 20.97 million) during yesterday’s trading due to the possible settlement/s of GoSL’s foreign debt servicing commitments and/or Central Bank of Sri Lanka’s (CBSL’s) swaps with the market and/or CBSL’s US dollar sales/swaps to/with GoSL and/or due to CBSL releasing dollars from the country’s foreign reserves to the market at discounted rate/s to meet the import bill/s of so called essential items. Conversions are based on Friday’s administered value of the benchmark ‘spot’ which was Rs 201.25 to the US dollar. CBSL lacks transparency in its open market operations data. 

Dead 118 Days

The interbank foreign exchange (FX) market was ‘dead’ for the 118th consecutive market day to yesterday with all trades in the FX market, ipso facto made worse by bank-client trades too, since midnight on 6 September, having to be executed under a controlled exchange rate (ER) regime of between Rs 202-203 to the dollar, thereby aiding in the spawning of a black market. Even at the controlled ER of Rs 203, the ER will have had depreciated by 7.69 per cent (Rs 14.50) in the calendar year to yesterday and year on year by 10.15 per cent (Rs 18.70) to the dollar, thereby causing cost-push inflation as Sri Lanka is an import dependent economy.

By Paneetha Ameresekere | Published: 2:00 AM Oct 22 2021

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