Inflationary MP debt increases to Rs 19B

By Paneetha Ameresekere | Published: 2:00 AM Oct 12 2020

By Paneetha Ameresekere 

Government of Sri Lanka’s (GoSL’s) face value money printing (FVMP) debt went deeper into the half-a-trillion rupee territory, for the third consecutive market day on Friday (9), due to a continued lack of GoSL revenue, complemented by GoSL’s demand-pull inflationary FVMP debt increasing by Rs 13,955 million, and, on the whole increasing its FVMP debt by 3.70 per cent (Rs 18,978 million) to Rs 531,634.87 million.

In the two consecutive market days to Friday, GoSL’s demand-pull inflationary FVMP debt had increased by Rs 18,955 million.

Meanwhile, Friday’s full complement of GoSL’s FVMP debt of Rs 18,978 million also included non-demand pull inflationary FVMP debt of Rs 5,023 million (USD 27.23 million) due to  the settlement/s of GoSL  debt servicing commitments and/or Central Bank of Sri Lanka (CBSL) returning swapped U.S. dollars to the market, thereby also making the country’s foreign reserves poorer by USD 27.23 million. Conversions are based on the middle rate of the benchmark ‘spot’ as at 4 p.m. on Wednesday which was Rs 184.45 to the Dollar. Consequently, GoSL’s money printing borrowing costs (MPBCs) also increased, with Friday’s increase being 4.74 per cent (Rs 635.21 million) to Rs 14,044.50 million and market’s net excess liquidity  by 13.42 per cent (Rs 13,955 million) to Rs 117,969 million on Friday.

In other developments, the ‘spot’ marginally fell by five cents to Rs 184.20/30 to the Dollar in two-way quotes at 4 p.m. on Friday, market sources told this reporter. In the calendar year to 4 p.m. on Friday, the ‘spot’ has depreciated by Rs 2.90 (1.60 per cent) in two-way quotes, thereby causing cost-push inflationary pressure as Sri Lanka is an import dependent economy.

Meanwhile, CBSL, the steward of the country’s debt and of its foreign reserves, is not transparent in its interventions in daily open market operations, by keeping mum in regard to the causes for the changes in market liquidity due to its actions, such as that which took place on Friday.

 GoSL’s FVMP debt is equal to the FV of CBSL’s Treasury (T) Bills and T-Bond holdings. ‘Spot’ trades are settled after two market days from the date of transaction. CBSL deals in ‘spot.’ MP is CBSL’s sole and mandated authority.  However, if MP ends up  in 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 (CBSL), then, that causes demand-pull inflationary pressure. The market is avoided to meet GoSL’s foreign debt servicing commitments for fear that that would further weaken the rupee as Sri Lanka is an import dependent economy. Investments in T-Bills and T-Bonds are risk free, because, in the event GoSL is unable to honour such debt, CBSL is mandated to print demand-pull inflationary money and repay such creditors.

By Paneetha Ameresekere | Published: 2:00 AM Oct 12 2020

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