MER weakens Rs 202/203
By Paneetha Ameresekere
The market exchange rate (MER) in interbank foreign exchange (FX) trading, which was one week’s forwards for the 12th consecutive market day, due to almost perennial controls, fell by 50 cents to Rs 202/203 to the US dollar in two-way quotes at 4 p.m. on Friday.
The sustained spread of 100 cents between the ‘buy’ and ‘sell’ quotes in the MER is an indication of uncertainty.
In the calendar year to Friday the MER has weakened by Rs 14.50 (7.73-7.69 per cent) in two- way quotes and year-on-year by Rs 7.50-8.00 (3.86-4.10 per cent), thereby causing cost-push inflationary pressure as Sri Lanka is an import dependent economy as seen by the country suffering perennial deficits in the balance of payments in the current account since 1978.
Government of Sri Lanka’s (GoSL’s) money printing borrowing cost (MPBCs) sharply increased by 4.62 per cent (Rs 952.14 million) to Rs 21,568.51 million due to the market’s (licensed commercial banks (LCBs) and primary dealers (PDs)) preference to invest in the stock market for better returns, thereby causing selling pressure in the low returns, riskless Treasury (T) Bills and T Bonds in secondary market trading on Friday rather than lend (LCBs) to the high returns growth engine, the private sector, due to uncertainty.
Central Bank of Sri Lanka’s (CBSL’s) face value money printing (FVMP) assets decreased by Rs 12,,047 million, thereby reducing GoSL FVMP debt by 1.29 per cent to Rs 921,281.94 million on Friday, subsequently partially mitigating demand-pull inflationary pressure as well.
However, GoSL’s FVMP debt has been over Rs 0.5 trillion for a record 107 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 US dollar sales and/or swaps with CBSL, saw liquidity being uplift by Rs 5,452.28 million (US$27.40 million)) on Friday. Conversions are based on CBSL’s administered/indicative ‘spot’ rate on Wednesday which was Rs 199.01 to the US dollar. CBSL is the steward of GoSL debt.
Meanwhile, net excess liquidity declined by 4.13 per cent (Rs 4,595 million) to Rs 106,768 million on Friday.