Monday Markets: FX Market Dead 13th Day
By Paneetha Ameresekere
In the interbank foreign exchange (FX) market, the administered ‘spot’ in two way quotes was quoted at Rs199.75/200.25 to the US dollar at 4 p.m. yesterday, unchanged over its previous day’s two way quotes, with no trades done, market sources told this reporter. Yesterday was the 13th consecutive market day than no trades were executed in the interbank foreign exchange market due to importers believing that there is room for the administered ‘spot’ to ‘further’ strengthen in value, they said. The market exchange rate (MER) has depreciated by between Rs11.95-11.75 (6.53-6.23 per cent) in two way quotes in the calendar year to yesterday and year on year by between Rs11.95-12.30 (6.36- 6.55per cent) , thereby causing cost-push inflationary pressure as Sri Lanka is an import dependent economy.
Yesterday saw a liquidity depreciation of Rs16,178million (US$81.06million) led by Government of Sri Lanka’s (GoSL’s) foreign debt servicing commitments and/or the settlement/s of transactions pertaining to Central Bank of Sri Lanka’s (CBSL’s) swaps with the market and/or CBSL’s dollar sales to and/or swaps with GoSL. Transactions between GoSL and CBSL are foreign reserves neutral.
Conversions are based on CBSL’s administered ‘spot’ rate on Wednesday which was Rs199.57 to the dollar. Consequently net excess liquidity decreased by 12.39 per cent to Rs 114,385 million yesterday. CBSL’s face value money printing (FVMP) assets decreased by Rs 200 million (0.02 per cent) to Rs 874,016.17 million yesterday, partially mitigating demand-pull inflationary pressure. GoSL’s FVMP debt has been over Rs 0.5 trillion for a record 129 consecutive market days to yesterday.
GoSL’s MP borrowing costs (MPBCs) sharply decreased by 2.45per cent (Rs523.28million) to Rs20,846.83 million yesterday due to investor preference to the low returns, riskless Treasury (T) Bonds and T Bills in secondary market trading rather than lend to the private sector, the engine of growth, due to sustained uncertainty.