Uncertainty impinges Market Lending
By Paneetha Ameresekere
The Government of Sri Lanka’s (GoSL’s) money printing borrowing costs (MPBCs) decreased by 0.72per cent (Rs 142.66 million) to Rs 19,698.59 million yesterday led by investor panic, causing them to invest in riskless, low returns Treasure (T) Bills and T Bonds, at the expense of lending to the lucrative private sector.
GoSL’s face value money printing (FVMP) debt decreased by 0.20 per cent (Rs 1,761 million) to Rs 874,673.17 million yesterday, thereby partially mitigating demand-pull inflationary pressure as well. GoSL’s FVMP debt has been over Rs 0.5 trillion for a record 145 consecutive market days to yesterday due to a lack of revenue.
Liquidity increased by Rs6, 836 million (US$34.23 million) led by the settlement/s of CBSL’s swaps with the market and/or GoSL’s US dollar sales to and/or swaps with CBSL during trading yesterday. Transactions between GoSL and CBSL are foreign reserves neutral. Conversions are based on CBSL’s administered ‘spot’ rate on Tuesday which was Rs 199.70 to the dollar. Net excess liquidity increased by 4.80 per cent (Rs 5,075 million) to Rs 110,718 million at the end of yesterday’s trading. The benchmark administered ‘spot’ was unchanged at Rs 199.75/200.25 to the dollar for the 17th consecutive market day to yesterday in the interbank foreign exchange (FX) market, with no trades done, led by moral suasion.
Yesterday was also the 29th consecutive market day on which no trades were executed in the interbank FX market. Nonetheless, the unsaid market exchange rate (MER) has theoretically depreciated by between Rs 12.25- 11.75 (6.53-6.23 per cent) in two way quotes in the calendar year to yesterday and year on year by between Rs 14.60-15.05 (7. 89-8.13 per cent), thereby causing cost-push inflationary pressure in the event trades were executed.
An administratively created ‘dead’ FX market for the sake of artificially inflating the value of the rupee, however, impinges on the stability of smaller banks and leads to a scenario of shortages, queues, corruption and a black market, reminiscent to that which beset the economy during the period 1970-1977. ‘Spot’ trades are settled after two market days from the date of transaction, CBSL deal in ‘spot.’ CBSL is the steward of GoSL debt and its foreign reserves.