Record Rs 228,250M Treasuries’ Settlements
By Paneetha Ameresekere
Government of Sri Lanka’s (GoSL’s) at least theoretical money printing borrowing costs (MPBCs) relative to the decline in its face value (FV) MP debt accelerated by 0.85 per cent (Rs 380.90 million) to Rs 45,312.14 million due to selling pressure of Treasury T-Bonds and T-Bills in secondary market trading on Friday (7) to reinvest in a record total of a minimum Rs 228,250 million worth of T-Bonds and T-Bills to be settled in the week end 21 January, for better returns due to double digit inflation.
Those comprise an auction for the sale of Rs 50,000 million T Bonds, an auction for the sale of Rs 81,000 million worth of T Bills and a yet to be announced auction for the sale of a minimum Rs 97,250 million maturing T Bills due to the market by 21 January, discounting repayments due to the Central Bank of Sri Lanka (CBSL) for such maturities held by it as the CBSL doesn’t’ disclose such figures.
GoSL’s face value money printing (FVMP) debt decreased by 2.62 per cent (Rs 52,054.39 million) to Rs 1,938,022.55 million (Rs 1.9380 trillion) on Friday, thereby negating demand pull inflationary pressure to an extent.
Market liquidity on Friday was uplift by Rs 59,827.39 million (USD 296.60 million) due to GoSL’s transactions with CBSL and CBSL’s swaps with the market at the discounted, administered, “benchmark” “spot” rate of Rs 201.71 to the U.S. dollar as at Wednesday (5). Transactions between GoSL and CBSL are foreign reserves neutral. CBSL is non-transparent in its open market operations.
GoSL’s FVMP debt has been over Rs one trillion for a record consecutive 117 market days to Friday. Also, GoSL’s highest to the ninetieth highest FVMP debt has been registered in the 90 consecutive market days to Friday, though not necessarily in a particular order.
Money market was short for the 85th consecutive market day to Friday, though this shortfall fell by 1.80 per cent (Rs 7,773 million) to Rs 424,448 million on Friday, causing nagging rate pressure.
The interbank foreign exchange (FX) market was ‘dead’ for the 172nd consecutive market day to Friday, with no outright transactions of worth taking place, coupled with all trades in the FX market, including bank-client trades too, since midnight 6 September, mandated to be executed under a controlled exchange rate (ER) regime of between Rs 202-203 to the dollar, aiding in the spawning of a black market.
The spawning of the current closed ER regime underlined by hardly any trades being conducted in the interbank FX market began on 28 April 2021. However, in the interim period, i.e. from 28 April to 6 September 2021, bank-client trades were allowed to be executed at rates determined by the two parties in question, till the clamp down on such trades too, since midnight 6 September 2021.
Meanwhile in the black market, the dollar was being traded at Rs 250 a unit, sources told this reporter recently (5 December 2021), a year on year depreciation of Rs 60.50 (31.93 per cent). A weak ER causes cost push inflationary pressure as Sri Lanka is an import dependent economy.
A year ago, in the interbank FX market, due to “milder” controls, the market ER which was from one week to one month forwards, was trading in a superimposed fashion of Rs 188.50/189.50 to the dollar in two way quotes.
”Spot” trades are settled after two market days from the date of transaction, CBSL, the steward of GoSL debt and its foreign reserves deals in “spot.” Sri Lanka’s above external commitments are met from its foreign reserves, because if met from the market, it will cause further depreciative pressure on the rupee.
FVMP debt is equivalent to the FV of CBSL’s holdings of T Bills and T Bonds to maturity. CBSL has the sole and mandatory rights to print money.