Market short 50th day
By Paneetha Ameresekere
Money market was short for the 50th consecutive market day to Friday, thereby causing persistent rate pressure, with market shortfall increasing for the fifth consecutive market day, this time by 0.02 per cent (Rs 57 million) to Rs 277,235 million.
Money market liquidity during Friday’s trading decreased for the second consecutive market day, this time by Rs 14,570.51 million (US$ 72.11 million) due to the possible settlement/s Central Bank of Sri Lanka (CBSL’s) sales of US dollars from the country’s foreign reserves at the administered, albeit discounted price of Rs 202.19 to the US dollar for the import of so called essential items and/ or Government of Sri Lanka’s (GoSL’s) foreign debt servicing commitments and/or CBSL’s dollar sales and/or swaps to/with GoSL and/ or CBSL’s swaps with the market.
GoSL’s Face Value Money Printing (FVMP) debt decreased by Rs 14,627 million (0.81 per cent) to Rs 1,781,198.43 million (Rs 1.7812 trillion) on Friday. GoSL’s FVMP debt has been over Rs one trillion for a record consecutive 82 market days to Friday. (GoSL’s) at least theoretical MP borrowing costs (BCs) increased by 40.68 per cent (Rs 14,732.92 million) to Rs 50,950.91 million due to the reconfiguration of GoSL’s FVMP debt to the more expensive Treasury Bonds from the cheaper T-Bills by CBSL on Friday. CBSL’s Open Market Operations (OMO) data don’t capture transactions between CBSL and other central banks, Asian Clearing Union and the IMF. Transactions between GoSL and CBSL are foreign reserves neutral. CBSL is not transparent in its OMO data.
Dead 137 days
The interbank Foreign Exchange (FX) market was ‘dead’ for the 137th consecutive market day to Friday with no outright transactions taking place, coupled with all trades in the FX market, including bank-client trades too, since midnight 6 September, mandated to be executed under a controlled Exchange Rate (ER) regime of between Rs 202-203 to the dollar, aiding in the spawning of a black market.
Non-commercial consumer credit card trades such as for education and health may be executed at a premium of five per cent over the administered ER of Rs 203 to the dollar, leading to such trades being executed at the Rs 213-214 levels to the dollar. Commercial trades with approvals, which may involve the passing of speed money have to be executed at the administered and discounted price of Rs 203 to the dollar, after, apparently dipping into the country’s spartan foreign reserves, to meet such commitments.
Even at the Rs 213-214 levels, the ER will have had depreciated by between Rs 24.50- 25.50 (13-13.53 per cent) in the calendar year to yesterday and Year on Year (YoY) by between Rs 28.55-29.55 (15.48-16.02 per cent), thereby causing cost-push inflationary pressure as Sri Lanka is an import dependent economy. 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 Friday and YoY by 9.55 per cent (Rs 17.70) to the dollar.