Wednesday Markets: NFOs Enter 150th Day

By Paneetha Ameresekere | Published: 2:00 AM Sep 23 2021

By Paneetha Ameresekere 

Bourse suffered net foreign outflows (NFOs) for the third consecutive market day to yesterday with a figure of Rs 79.29 million, increasing NFOs to Rs 43.15 billion in the calendar year to yesterday, a year on year (YoY) increase of Rs 6.05 billion (16.32 per cent) due to sustained uncertainty. In the 172 market days that have transpired in the calendar year to yesterday, the bourse has suffered NFOs in 150 (87.21 per cent) of those days due to nagging uncertainty. 

Last year the bourse suffered a record Rs 51.04 billion worth of NFOs. In the 207 market days that transpired last year, the bourse suffered a record NFOs in 90.82 per cent (188) of those days. Nonetheless, the bourse made pyrrhic gains yesterday, with the benchmark ASPI increasing by 0.20 per cent to 8,788.05 points and the more sensitive S&P SL 20 Index by 0.51 per cent to 3,283.50 points, on a Rs 2.56 billion turnover and on a share volume of 88.72 million yesterday. 

MPBCs Sharply Up 

Due to selling of Treasury (T) Bonds in secondary market trading yesterday in order to invest in T Bills, particularly at the auction, saw Government of Sri Lanka’s (GoSL’s) at least theoretical money printing borrowing costs (MPBCs) increase by 0.79 per cent (Rs 309.75 million) to Rs 39,499.32 million. Money market was short for the twelfth consecutive market day to yesterday thereby causing persistent rate pressure, with market shortfall increasing by 1.12 per cent (Rs 2,244 million) to Rs 203,094 million (Rs 203.09 billion). 

Liquidity decreased by Rs 6,816 million (US$ 34.08 million) during trading due to the settlement/s of GoSL’s foreign debt servicing commitments and/or Central Bank of Sri Lanka’s (CBSL’s) swaps with the market and/or CBSL’s US dollar sales to GoSL. Conversions are based on Friday’s administered value of the benchmark ‘spot’ which was Rs 200 to the dollar. CBSL lacks transparency in its open market operations. 

Dead: 99 Days 

The interbank foreign exchange (FX) market was ‘dead’ for the 99th consecutive market day to yesterday (Wednesday, 22 September) with all trades in the FX market, ipso facto made worse by bank-client trades too since midnight on 6 September having to be executed under a controlled exchange rate (ER) regime of between Rs 200-203 to the dollar, thereby aiding in the spawning of a black market. Even at the controlled ER of Rs 203, the ER will have had depreciated by 7.69 per cent (Rs 14.50) in the calendar year to Friday and YoY by 9.46 per cent (Rs 17.55), thereby causing cost-push inflation as Sri Lanka is an import dependent economy. 

As at 31 December 2020, in the interbank FX market, beginning with ‘cash’ and going up to “one week’s forwards, the ER was trading at a seemingly inflated value of Rs 187.50/188.50 to the dollar in two way quotes due to CBSL controls, while a year ago due to lesser controls, the benchmark ‘spot’ was trading in the market at Rs 185.35/45 to the dollar in two way quotes. Interbank exchange controls first took root on 28 April at Rs 199/200 to the dollar. What was worse was that previously in such situations/ controls, CBSL is used to sell dollars from the country’s foreign reserves for instance in situations such as this from the country’s foreign reserves at Rs 203 to the dollar. 

But in this instance, no such sales took place, at least on a consistent basis, thereby signifying the beginning of the current exchange controlled regime. Another feature of the present exchange controlled regime is that little or no outright purchases/sales take place in the interbank FX market. Meanwhile, this moral suasion regime of Rs 199/200 to the dollar in two way quotes in the interbank FX market continued till 10 May when on the following day 11 May, CBSL by moral suasion artificially weakened the ER to Rs 199.50/200.00 to the dollar in two way quotes, before further weakening it to Rs 199.75/200.25 to the dollar in two way quotes on 13 May, whilst once more weakening it to Rs 202/203 to the dollar in two way quotes on 5 July.

By Paneetha Ameresekere | Published: 2:00 AM Sep 23 2021

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