Reserves Bleed $235M
By Paneetha Ameresekere
The country’s foreign reserves haemorrhaged for the second consecutive market day to yesterday, this time by US$ 122.47 million (Rs 24,610 million), at the discounted, administered, ‘benchmark’ ‘spot’ rate of Rs 200.95 to the US dollar as at Tuesday, thereby accruing $ 235.27 million in the two market days to yesterday from the country’s foreign reserves and needing another $ 264.73 million to settle the $ 500 million maturing international sovereign bond (ISB) of Tuesday’s, on the assumption that no US dollars were withdrawn to meet ‘essential’ imports in the review period.
CBSL is non-transparent in its open market operations. GoSL’s at least theoretical money printing borrowing costs (MPBCs) sharply increased by 12.94 per cent (Rs 4,971.25 million) to Rs 43,394.92 million yesterday due to selling pressure of Treasury (T) Bonds and T-Bills in secondary market trading, to reinvest in Wednesday’s largest ever T-Bill auction for the sale of Rs 97,000 million T-Bills, with expectations of better returns, led by double digit inflation.
GoSL’s face value MP (FVMP) debt increased by 0.71 per cent (Rs 13,632 million) to Rs 1,942,387.55 million (Rs 1.9424 trillion) yesterday, this increase was however non-demand pull inflationary, as it was used to meet the above external commitment.
Money market was short for the 89th consecutive market day to yesterday, with this shortfall increasing for the second consecutive market day, this time by 2.45 per cent (Rs 10,978 million) to Rs 459,932 million, thereby causing nagging rate pressure.
GoSL’s FVMP debt has been over one trillion rupees for a record consecutive 121 market days to yesterday. Also, GoSL’s highest to the ninety fourth highest FVMP debt has been registered in the 94 consecutive market days to yesterday, though not necessarily in a particular order.
Dead 176 Days
The interbank foreign exchange (FX) market was ‘dead’ for the 176th consecutive market day to yesterday, 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.
Meanwhile in the black market, the dollar was being traded at Rs 250 a unit, sources told this reporter on 5 December 2021, a year-on-year depreciation of Rs 61.50 - 55.50 (32.63 - 28.53 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, nonetheless, which saw the operation of a dual exchange regime with an administered ‘spot’ and the market ER on board, saw the former trading at Rs 188.50 to the dollar and the latter which ranged from ‘spot next’ to one month forwards, was trading in a superimposed fashion of Rs 193.50/194.50 to the dollar in two way quotes. ‘Spot’ trades are settled after two market days from the date of transaction and ‘spot next’ in three.
CBSL, the steward of GoSL debt and its foreign reserves deals in ‘spot’. 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. Issuing of T-Bills and T-Bonds by the GoSL is a popular mechanism resorted to by the State to raise money domestically to meet its monetary commitments.
Investments in T-Bills and T-Bonds are risk free, because in the event GoSL is unable to honour such debt, CBSL is mandated to print demand pull inflationary money and repay such creditors. ‘Essential’ imports and GoSL’s foreign debt servicing commitments are met from the country’s foreign reserves and not from the market, because if met from the latter, that will cause further pressure on the rupee as Sri Lanka is an import dependent economy.