Inflationary Money Printing Debt Increases by Rs 1.3B: GoSL’s MPBCS up 63.11% due to investor panic

By Paneetha Ameresekere | Published: 2:00 AM Aug 5 2020

By Paneetha Ameresekere

Government of Sri Lanka’s (GoSL’s) demand-pull inflationary face value money printing (FVMP) debt increased by Rs 1,296.91 million (Rs 1.3 billion), and, consequently, GoSL total FVMP debt increased by 0.42 per cent to Rs 310,334.45 million at the end of yesterday’s trading.

Meanwhile, led by investor panic due to today’s Parliamentary Poll, saw investors liquidating their safe haven Treasury (T) Bills and T Bonds (GoSL Securities), resulting in GoSL’s MP borrowing costs (BCs) sharply increasing by 63.11 per cent (Rs 238.02 million) to Rs 615.19 million yesterday.

However, swaps between the Central Bank of Sri Lanka (CBSL) and domestic banks saw market liquidity being uplift by Rs 5,731.09 million (US$ 30.87 million) during the course of yesterday’s trading. Conversions are based on the middle rate of the benchmark ‘spot’ as at 4p.m. on Thursday (30 July) which was Rs 181.665 million to the US dollar. Monday was a Poya holiday to the market. 

Howbeit, CBSL, the steward of the country’s foreign debt and of its foreign reserves, transactions with the market and also with the GoSL are not transparent, in that it expects reporters to make arithmetical deducements to trace CBSL’s interventions in open market operations, by maintaining radio silence of its involvement in the market.

Nonetheless, subsequently, market’s net excess liquidity increased by 4.78 per cent (Rs 7,028 million) to Rs 153,939 million at the end of yesterday’s trading.

In other developments, the ‘spot’ made pyrrhic gains for the third consecutive market day yesterday, this time between nine and one cent in two way quotes to be trading at Rs 185.55/65 to the US dollar at 4p.m., market sources told this reporter. 

These gains are due to exchange controls which have killed import demand, they said.

Nevertheless, year on year as at yesterday the ‘spot’ has weakened by 2.34 per cent (Rs 4.25) in two-way quotes, thereby causing cost-push inflationary pressure as Sri Lanka is an import -dependent economy. ‘Spot’ trades are settled after two market days from the date of transaction. GoSL’s FVMP debt is equal to the FV of CBSL’s T Bills and T-Bond holdings. MP is CBSL’s sole and mandated authority. MP is exercised to meet GoSL’s monetary commitments in the absence of adequate revenue and increased GoSL expenditure. However, if MP ends up at the hands of GoSL only, without ‘once more’ being passed on to CBSL, for instance as settlement to buy the required dollars to meet GoSL’s foreign debt servicing commitments from the former, then, that causes demand pull inflationary pressure.

By Paneetha Ameresekere | Published: 2:00 AM Aug 5 2020

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