MP Over Rs 1T for 64 Days
Government of Sri Lanka’s (GoSL’s ) at least theoretical money printing borrowing costs (MPBCs) decreased by 0.54 per cent (Rs 326.28 million) to Rs 60,187.19 million on Friday, in tandem with GoSL’s face value (FVMP) debt falling by 0.50 per cent (Rs 8,636million) to Rs 1,734,314.04 million (Rs 1.7343 trillion), thereby marginally defraying demand-pull inflationary pressure as well. GoSL’s FVMP debt has been over Rs one trillion for a record consecutive 64 market days to Friday due to a lack of revenue.
Money market was short for the thirtysecond consecutive market day to Friday, thereby causing persistent rate pressure, with market shortfall increasing by 0.04 per cent (Rs 69 million) to Rs 171,839 million. Liquidity increased by Rs 8,567 million (US$ 42.82 million) during Friday’s trading due to the possible settlement/s of Central Bank of Sri Lanka’s (CBSL’s) swaps with the market and/or GoSL’s US dollar sales/swaps to/with CBSL . Conversions are based on Monday’s administered value of the benchmark ‘spot’ which was Rs 200.09 to the US dollar. CBSL lacks transparency in its open market operations data.
Dead 119 Days
The interbank foreign exchange (FX) market was ‘dead’ for 119th consecutive market day to Friday, 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 by 10.03 per cent (Rs 18.50) 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 184.30/50 to the dollar in two way quotes.