Settlement of exporter conversions and ‘avurudu’ remittances for the third consecutive market day to today (Thursday 30 March), albeit tempered this time by import demand, nonetheless saw the country’s foreign reserves being uplift by a nominal USD 1.86 million (Rs 594 million) and in the three market days to today by USD 51.84 million (Rs 16,597 million), an analysis of Central Bank of Sri Lanka’s (CBSL’s) open market operations (OMO) data showed. Conversions are based on Friday’s (24 March), Monday’s (27 March) and Tuesday’s (28 March) administered ‘spot’ values which were Rs 318.63, Rs 320.60 and Rs
319.98 to the US dollar respectively.
Consequently, Government of Sri Lanka’s (GoSL’s) face value money printing (FVMP) debt decreased for the fifth consecutive market day to today (30 March), this time albeit marginally, ie 30 March 2023 over 29 March 2023, by 0.01 per cent (Rs 212 million) to Rs 2,908,515.57 million (Rs 2.9085 trillion), thereby nominally deflating demand-pull inflationary pressure.
Subsequently, market’s net shortfall decreased for the third consecutive market day to today, this time by 0.15 per cent (Rs 382 million) to Rs 250,133 million. Further, GoSL’s at least direct, theoretical MP borrowing costs (BCs) decreased for the fourth consecutive market day to today, this time by 2.56 percent (Rs 1,900.57 million) to Rs 72,325.05 million, due to overall buying pressure of Treasury (T) Bills and T Bonds in secondary market trading, attracted by high yields offered, but at the expense of not lending
to the private sector, the engine of growth.
Meanwhile, CBSL’s open market operations (OMO) statistics, from where the above figures are extrapolated, lacks transparency. MP, coupled with being the steward of the country’s foreign reserves and of its debt is the exclusive prerogative of the CBSL. GoSL’s FVMP debt is equivalent to the totality of CBSL’s T Bill and T Bond holdings. GoSL’s MPBCs are prorated to the outcome in secondary market trading of T Bills and T Bonds on the reference day.
‘Spot’ trades are settled after two market days from the date of transaction. CBSL, the steward of GoSL debt and its foreign reserves deals in ‘spot.’ The ‘spot’ is administered to minimize GoSL’s foreign debt in rupee terms and to lower the cost of ‘essential’ imports like medicines and energy imports which at times, generally these days, are met from the country’s foreign reserves and not from the market, to prevent depreciative pressure on the rupee as Sri Lanka is an import dependent economy.
Issuing of T Bills and T Bonds is a popular way GoSL raises money domestically to meet its local commitments. Investing in T Bills and T Bonds is generally considered as being riskless, because, in the event GoSL is unable to repay such debt, CBSL is normally mandated to print demand pull inflationary money and repay such creditors.