Tuesday Markets: Rupee Down 7.89-8.38%

By Paneetha Ameresekere

‘Spot next’ and up to one month’s forwards, the most popular foreign exchange (FX) instruments these days due to controls on the benchmark ‘spot’ fell sharply by Rs two to be trading Rs 195.50/196.50 to the US dollar in two way quotes at 4 p.m. yesterday, market sources told Ceylon FT.

Year on year to yesterday the exchange rate has fallen sharply by between Rs 14.30-15.20 (7.89-8.38 per cent) in two way quotes thereby causing cost-push inflationary pressure as Sri Lanka is an import dependent economy. Meanwhile, the persistent spread of 100 cents between the ‘buy’ and ‘sell’ quotes of the exchange rate is a reflection of the uncertainty pervading the FX market currently, sources said. The ‘spot’ is controlled to minimise the government’s foreign debt in rupee terms. 

The country’s foreign reserves bled for the second consecutive market day, yesterday by US$ 26.52 million (Rs 5,067 million) and in the two consecutive market days to yesterday by US$ 70.95 million (Rs 13,878 million) due to the settlement/s of GoSL’s foreign debt servicing commitments and/or due to Central Bank of Sri Lanka’s (CBSL’s) protection of the rupee from depreciative pressure in the market and/or due to CBSL returning maturing swapped US dollars to the market.  Haemorrhaging of the country’s foreign reserves have to be looked at in the context that reserves are already at a 43-month low at US$5,555.30 million as at end November 2020, data showed. 

GoSL’s money printing borrowing costs (MPBCs) fell sharply for the eleventh consecutive market day to yesterday, this time steeply by 0.94 per cent (Rs 134.43 million) to Rs 14,172.11 million.  This fall has to be looked at in the context that GoSL’s face value (FV) MP debt which remained unchanged at Rs 731,246.88 million yesterday, a case for MPBCs too to remain unchanged under perfect conditions.  

GoSL’s FVMP debt has been above Rs 0.5 trillion for a record 53 consecutive market days in its second dispensation to yesterday due to a lack of GoSL revenue. Consequently net excess liquidity fell by 2.37 per cent to Rs 208,847 million yesterday.