Money market short for 10th day

Paneetha Ameresekere | Published: 2:00 AM Sep 20 2021

Paneetha Ameresekere 

The Money market was short for the tenth consecutive market day to Friday thereby causing rate pressure, though market shortfall fell by 1.54 per cent (Rs 3,236 million) to Rs 206,595 million (Rs 206.60 billion). Liquidity decreased for the fourth consecutive market day to Friday, this time too, steeply, by Rs 26,300.33 million (US$ 131.51 million) during trading due to the settlement/s of Government of Sri Lanka’s (GoSL’s) foreign debt servicing costs and/or Central Bank of Sri Lanka’s (CBSL’s) swaps with the market and/or CBSL’s US dollar sales to GoSL. Conversions are based on Wednesday’s administered value of the benchmark ‘spot’ which was Rs 200 to the dollar. 

The interbank foreign exchange (FX) market was ‘dead’ for the 97th consecutive market day to Friday with all trades in the FX market, ipso facto made worse by bank-client trades too since midnight on 6 September having to be executed under a controlled exchange rate (ER) regime of between Rs 200-203 to the dollar, thereby aiding in the spawning of a black market. Even at the controlled ER of Rs 203, the ER would have depreciated by 7.69 per cent (Rs 14.50) in the calendar year to Friday and year on year by 9.64 per cent (Rs 17.85) thereby causing cost-push inflation as Sri Lanka is an import dependent economy. 

Seemingly led by panic buying of riskless, low returns Treasury (T) Bills and T Bonds in the secondary market trading due to sustained uncertainty, saw GoSL’s at least theoretical money printing borrowing costs fall for the second consecutive market day to Friday, this time too, steeply, by 16.79 per cent (Rs 8.09 million) to Rs 40.11 million. 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 185.05/15 to the dollar in two way quotes. ‘Spot’ trades are settled after two market days from the date of trading. 

Having a dead interbank FX market, supported by FX controls lead to an era of shortages, queues, nepotism, cronyism, corruption and rationing, reminiscent of the era the country experienced 44 years ago over a seven-year period from 1970-77, where the then Government in power practised a closed economy.

Paneetha Ameresekere | Published: 2:00 AM Sep 20 2021

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