Monday Markets: MER Weakens to Rs 200.50/201.50

By Paneetha Ameresekere | Published: 2:00 AM Apr 6 2021

By Paneetha Ameresekere

The market exchange rate (MER) which was one week’s forwards for the eighth consecutive market day due to almost perennial controls, sharply weakened by Rs 1.50 to be trading at Rs 200.50/201.50 to the US dollar in two way quotes in interbank trading at 4 p.m. yesterday. 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 Thursday, the MER has weakened by Rs 13 (6.93 - 6.90 per cent) in two way quotes and year on year by Rs 7.75 (4.02 - 4.00 per cent), thereby causing cost-push inflationary pressure.

Government of Sri Lanka’s (GoSL’s) money printing borrowing cost (MPBCs) sharply decreased by 1.37 per cent (Rs 570.95 million) to Rs 41.2 billion led by the market’s (licensed commercial banks (LCBs) and primary dealers (PDs)) preference to buy riskless, low value Treasury (T) Bills and T Bonds in secondary market trading rather than LCBs investing with the growth engine, the private sector in secondary market trading.

  GoSL’s face value (FV) MP debt decreased by 0.75 per cent (Rs 6.85 billion) to Rs 906.2 billion, thereby partially mitigating demand pull inflationary pressure and MPBCs as well. Consequently, market’s net excess liquidity decreased by 5.19 per cent (Rs 4.48 billion) to Rs 81.87 billion yesterday.

GoSL’s FVMP debt has been over Rs 0.5 trillion for a record 103 consecutive market days to yesterday.  Settlement/s of transactions pertaining to Central Bank of Sri Lanka’s (CBSL’s) swaps with the market (LCBs) and/or due to GoSL’s  dollar sales  to CBSL , saw liquidity being  uplift by 

Rs 2.37 billion (US$ 11.91 million) yesterday. Conversions are based on CBSL’s administered/indicative ‘spot’ rate on Wednesday which was Rs 199.04 to the US dollar. 

Transactions between GoSL and CBSL are foreign reserves neutral, other than in the case where such transactions include rupee protection from depreciative pressure in the market (LCBs) and GoSL’s foreign debt servicing commitments which drain the country’s foreign reserves. GoSL operates through LCBs in the foreign exchange (FX) market. Return of maturing swapped dollars by CBSL to the market (LCBs) also negatively impact the country’s foreign reserves.

The course of the MER these days is generally determined by the GoSL and/or its agents and not necessarily by the market. 

By Paneetha Ameresekere | Published: 2:00 AM Apr 6 2021

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