Monday Markets: MPBCs Fall on Uncertainty

By Paneetha Ameresekere | Published: 2:00 AM Oct 19 2021

By Paneetha Ameresekere 

Government of Sri Lanka’s (GoSL’s ) at least theoretical money printing borrowing costs (MPBCs) fell by 6.83 per cent (Rs 4,11.98 million) to Rs 60,220.95 million yesterday due to sustained uncertainty, leading to the market investing in riskless, low value Treasury T-Bills and T-Bonds in secondary market trading, rather than lend to the lucrative private sector, the engine of growth. GoSL’s face value (FVMP) debt increased for the fifth consecutive market day to yesterday, this time the increase being Rs 4,127 million (0.24 per cent) and wholly nondemand pull inflationary, thereby increasing GoSL’s FVMP debt to a new record high of Rs 1,741,669.03 million (Rs 1.7417 trillion). 

GoSL’s FVMP debt has been over Rs one trillion for a record consecutive 62 market days to yesterday due to a lack of revenue. Money market was short for the thirtieth consecutive market day to yesterday thereby causing persistent rate pressure, with market shortfall increasing by 11.35 per cent (Rs 17,211 million) to Rs 168,831 million. 

Liquidity decreased by a massive Rs 21,338 million (US$ 106.69 million) during yesterday’s trading due to the possible settlement/s of GoSL’s foreign debt servicing commitments and/or Central Bank of Sri Lanka’s (CBSL’s) swaps with the market and/or CBSL’s US dollar sales/swaps to/ with GoSL. Conversions are based on Thursday’s administered value of the benchmark ‘spot’ which was Rs 200.00 to the US dollar. CBSL lacks transparency in its open market operations data. 

Dead 117 Days 

The interbank foreign exchange (FX) market was ‘dead’ for 117th consecutive market day to yesterday with all trades in the FX market, ipso facto made worse by bankclient trades too, since midnight on 6 September, having to be executed under a controlled exchange rate (ER) regime of between Rs 202-203 to the dollar, thereby aiding in the spawning of a black market. Even 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 year on year (YoY) by 9.19 per cent (Rs 18.65) to the dollar, thereby causing cost-push inflation as Sri Lanka is an import dependent economy. 

As at 31 December 2020, in the interbank FX market, beginning with ‘cash’ and going up to “one week’s forwards,” the ER was trading at a seemingly inflated value of Rs 187.50/188.50 to the dollar in two way quotes due to CBSL controls, while a year ago due to lesser controls, the benchmark ‘spot’ was trading in the market at Rs 184.25/35 to the dollar in two way quotes. 

NFOs Up Rs 45.41Bn 

The bourse saw a net foreign outflow (NFO) of Rs 195.01 million yesterday, increasing NFOs in the calendar year to date to Rs 45.41 billion, a year on year (YoY) increase of 3.82 per cent ( Rs 1.67 billion). In the 190 market days that have transpired in the calendar year to yesterday, the bourse has suffered NFOs in 165 (86.84 per cent) of those days. Last year the bourse suffered a record Rs 51.04 billion worth of NFOs due to similar uncertainty. In the 207 market days that transpired last year, the bourse suffered a record NFOs in 90.82 per cent (188) of those days. 

Nonetheless, the bourse made pyrrhic gains for the third consecutive market days to yesterday, with the benchmark ASPI this time increasing by 0.89 per cent to 9,709.14 points and the more sensitive S&P SL 20 Index by 0.09 per cent to 3,553.45 points, on a Rs 2.75 billion turnover and on a share volume of 159.88 million due to nagging uncertainty. Shareholder wealth lost in the three market days to yesterday have amounted to Rs 80.84 billion. The danger in having a controlled FX market is that it leads to a black market, shortages, queues, rationing, cronyism, nepotism, bribery and corruption, similar to the conditions that prevailed when Sri Lanka practised a closed economy 44 years ago, ie from 1970-77. Also, having a controlled FX regime, encourages illegal money transfer channels such as ‘hawala’ and ‘undiyal,’ to the detriment of the real economy.

By Paneetha Ameresekere | Published: 2:00 AM Oct 19 2021

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