CBSL Prints Rs 17.7 Billion to Meet Local Needs

Perennial lack of revenue made Government of Sri Lanka’s (GoSL’s) demand-pull inflationary money increase by Rs 17,713.64 million on Friday (21 April). Complementing these developments, GoSL’s direct money printing borrowing costs (MPBCs) sharply increased by 14.82 per cent (Rs 10,548.98 million) to Rs 81,744.03 million due to selling pressure of Treasury (T) Bills and T Bonds in secondary market trading on Friday.

This selling pressure was caused by investor attraction to Wednesday’s (26 April) T Bill auction where Rs 115 billion is on offer to reinvest in the same on expectations of higher yields driven by sustained uncertainty and high, double digit inflation.

Consequently, GoSL’s face value (FV) MP debt increased by 0.60 per cent to Rs 2,953,635.08 million (Rs 2.9536 trillion) on Friday. Helped by swap settlements between the GoSL and the Central Bank of Sri Lanka (CBSL), where the former swapped US dollars for rupees with the latter, liquidity during Friday’s trading increased by Rs 156,633.36 million (USD 488.21 million). Conversions are based on last Wednesday’s (19 April) administered ‘spot’ value which was Rs 320.83 to the US dollar. CBSL’s open market operations (OMO) statistics from where the above figures are extrapolated; lacks transparency. Swaps between GoSL and CBSL are foreign reserves neutral. Subsequently market’s net shortfall fell by 73.47 per cent (Rs 174,347 million) to Rs 62,960 million on Friday.

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 repayments and foreign debt as a whole in rupee terms.

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.