‘Spot’ Sharply Gains by 65 Cents
By Paneetha Ameresekere
The benchmark ‘spot,’ boosted by exchange controls and affirmed political stability after Wednesday’s Parliamentary Poll, sharply gained by 65 cents, to trade at Rs 184.75/85 to the US dollar in two-way quotes at 4:00 p.m. yesterday, as opposed to it trading at Rs 185.40/50 to the dollar in two-way quotes as at 4:00 p.m. on the previous market day Friday, market sources told this reporter.
Yesterday was also the third consecutive market day that the ‘spot’ made gains. Nevertheless, year-on-year as at yesterday the ‘spot’ has weakened by 1.90 per cent (Rs 3.45) in two-way quotes, thereby causing cost-push inflationary pressure, as Sri Lanka is an import-dependent economy.
In related developments, swaps between the Central Bank of Sri Lanka (CBSL) and the Government of Sri Lanka (GoSL), possibly also due such similar swaps executed between CBSL and commercial banks and followed by exporter conversions, saw market liquidity being uplifted by Rs 11,552 million (US$ 62.28 million) during the course of yesterday’s trading. Conversions are based on the middle rate of the ‘spot’ as at 4:00 p.m. on Thursday (6 August) which was Rs 185.475 to the dollar.
Consequently, market’s net excess liquidity increased by 6.75 per cent (Rs 11,532 million) to Rs 182,340 million at the end of yesterday’s trading.
Nonetheless, domestic investors feeling it more secure to invest in safe haven Treasury (T) Bills and T Bonds (GoSL Securities) saw GoSL’s money printing borrowing costs (MPBCs) sharply decrease by 15.38 per cent (Rs 176 million) to Rs 967.98 million at the end of yesterday’s trading.
In other developments, GoSL’s demand-pull inflationary face value (FV) MP debt decreased by Rs 20 million, and, consequently, GoSL total FVMP debt fell by 0.01 per cent to Rs 319,204.45 million at the end of yesterday’s trading, thereby mitigating demand-pull inflationary pressure as well, to a marginal extent.
Howbeit, CBSL, the steward of the country’s foreign debt and of its foreign reserves, transactions with the market and also with the GoSL are not transparent, in that it expects reporters to make arithmetical deducements to trace CBSL’s interventions in open market operations, by maintaining radio silence of its involvement in the market.
‘Spot’ trades are settled after two market days from the date of transaction. GoSL’s FVMP debt is equal to the FV of CBSL’s T Bills and T Bond holdings. MP is CBSL’s sole and mandated authority. MP is exercised to meet GoSL’s monetary commitments in the absence of adequate revenue and increased GoSL expenditure. However, if MP ends up at the hands of GoSL only, without ‘once more’ being passed on to CBSL, for instance as settlement to buy the required dollars to meet GoSL’s foreign debt servicing commitments from the former (CBSL), then, that causes demand-pull inflationary pressure.