Import Demand Weakens Rupee

The benchmark ‘spot’ sharply weakened by four rupees (1.37 per cent) to be trading at Rs
295.00/296.00 to the US dollar in two way quotes today due to import demand, market sources who didn’t want to be named told ‘Finance Today.’ A weak ‘spot’ causes cost-push inflationary pressure as Sri Lanka is an import dependent economy, whereas a strong ‘spot’ negates cost-push inflationary pressure.

However, year on year (YoY) to today the ‘spot’ has steeply gained by between Rs 65.00 and Rs 69.00 (18.06-18.90 per cent) to the dollar in two way quotes. A year ago the ‘spot’ was trading unchanged for the seventeenth consecutive market day to 8 June 2022 at Rs 360/365 to the dollar in two way quotes, statistics also showed.

The overall strengthening of the rupee is after the Government of Sri Lanka (GoSL) and the CBSL entered into an IMF Staff level agreement for the release of a USD three billion Extended Fund Facility (EFF) spread over a four year period, with the first tranche of $ 330 million released in March itself.

Meanwhile, CBSL strengthened the administered ‘spot’ for the third consecutive market day to today; this time by 0.08 per cent (24 cents) to Rs 290.97 to the dollar. Meanwhile, a year ago CBSL strengthened the administered ‘spot’ by 0.07 per cent (25 cents) to Rs 360.03 to the dollar. Nonetheless, YoY to today, the administered ‘spot’ has sharply strengthened by 19.18 per cent (Rs 69.06) to the dollar.

‘Spot’ trades are settled after two market days from the date of trading. CBSL the steward of GoSL debt and of its foreign reserves deals in the official ‘spot.’ The official ‘spot’ is usually artificially propped up to minimize the cost of GoSL’s foreign debt in rupee terms and also to minimize GoSL’s foreign debt servicing costs in rupee terms.