wednesday Markets: Bourse Suffers NFOs for 10th Day

By Paneetha Ameresekere | Published: 2:00 AM Apr 8 2021

By Paneetha Ameresekere 

The bourse suffered net foreign outflows (NFOs) for the 10th consecutive market day to yesterday due to persistent uncertainty, this time by Rs 117.55 million, thereby increasing NFOs in the calendar year to date to Rs 18.48 billion. 

In the calendar year to yesterday, 62 market days have transpired. In those 62 market days the bourse has suffered NFOs in 57 of those days, translating to the fact that in the review period the bourse has suffered NFOs in 91.94 per cent of those days.

Last year the bourse suffered NFOs totalling a record Rs 50.94 billion, whilst also suffering NFOs for a record 188 market days (90.82 per cent) in a total of 207 market days that last year saw, due to similar uncertainty.

Meanwhile, turnover made yesterday was Rs 5.16 billion on a share volume of 97.75 million.

Nonetheless, the benchmark ASPI made a pyrrhic gain of 0.41 per cent to 7,310.26 points yesterday and the more sensitive S&P SL20 Index  gained by 0.70 per cent to 2,954.94 points. 

Forex Market

The market exchange rate (MER) in interbank trading which was one week’s forwards for the 10th  consecutive market day due to almost perennial controls, weakened for the third consecutive market day to yesterday, this time too like on Tuesday by 50 cents to  Rs 201.50/202.50 to the US dollar in two-way quotes  at 4p.m.

The sustained spread of 100 cents between the ‘buy’ and ‘sell’ quotes in the MER is an indication of uncertainty. 

In the calendar year to yesterday, the MER has weakened by Rs 14 (7.47-7.43 per cent) in two-way quotes and year on year by between Rs 4.50- Rs 3.50 (2.28-1.76 per cent), thereby causing cost-push inflationary pressure as Sri Lanka is an import dependent economy as seen by the country suffering perennial deficits in the balance of payments in the current account since 1978.

Government of Sri Lanka’s (GoSL’s) money printing borrowing cost (MPBCs) sharply decreased by 53.16 per cent (Rs 23.46 billion) to Rs 20.67 billion due to a combination of an expected rate cut at yesterday’s Monetary Board meeting to spur the economy and the market’s licensed commercial banks (LCBs) and primary dealers (PDs)) preference to invest in riskless, low returns Treasury (T) Bills and T Bonds in secondary market trading rather than lend to  the high returns  growth engine the private sector due to uncertainty.

Central Bank of Sri Lanka’s (CBSL’s) non- demand-pull inflationary face value money printing (FVMP) assets increased by Rs 3.42 billion to meet GoSL’s  external commitments, thereby increasing GoSL FVMP debt by 0.37% to Rs 929.87 billion yesterday.

GoSL’s FVMP debt has been over Rs 0.5 trillion for a record 105 consecutive market days to yesterday.

Settlement/s of transactions pertaining to CBSL’s protection of the rupee from market (LCBs) depreciative pressure and/or CBSL’s swaps with the market (LCBs) and/or CBSL’s US dollar sales and/or swaps with GoSL and/or foreign debt servicing commitments of GoSL saw liquidity being  compressed by Rs 10,720 million ((Rs 10.72 billion) (US$ 53.77 million)) yesterday. Conversions are based on CBSL’s administered/indicative ‘spot’ rate on Monday which was Rs 199.38 to the US dollar. CBSL on Sunday said that GoSL’s foreign debt servicing commitments in the calendar year to date had cost nearly US$1.2 billion.  CBSL is the steward of GoSL debt. Consequently net excess liquidity declined by 5.97% (Rs 7.3 billion) to Rs 115.01 billion yesterday.

Transactions between GoSL and CBSL are foreign reserves neutral, other than in the case where such transactions include rupee protection from depreciative pressure in the market (LCBs) and GoSL’s foreign debt servicing commitments which also drain the country’s foreign reserves. GoSL operates through LCBs in the foreign exchange (FX) market. Return of maturing swapped dollars by CBSL to the market (LCBs) also negatively impact the country’s foreign reserves.

By Paneetha Ameresekere | Published: 2:00 AM Apr 8 2021

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