The benchmark ‘spot’ sharply gained by Rs four (1.36 per cent) today, to be trading at Rs 290.00/291.00 to the US dollar in two way quotes, sources who didn’t want to be named told ‘BMD.’
This ‘spot’ has made consecutive gains for eight market days to today, increasing in value by between 5.38 and 5.21 per cent in two way quotes (Rs 16.50-16.00), thereby squashing demand-pull inflationary pressure as Sri Lanka is an import dependent economy. Subsequently, year on year (YoY) to today, the ‘spot’ has steeply gained by between Rs 70-74.00 (19.44-20.27 per cent) to the dollar in two way quotes.
The current strengthening of the rupee is after the Government of Sri Lanka (GoSL) and the Central Bank of Sri Lanka (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.
CBSL buys dollars from the market to strengthen the country’s parlous foreign reserves, but at the expense of weakening the rupee, but when there is a ‘pause,’ like what happened yesterday for instance, that helps to strengthen the rupee, due to a lack of demand led by import controls and bans.
A year ago the ‘spot’ was trading unchanged for the eleventh consecutive market day to 31 May 2022 at Rs 360/365 to the dollar in two way quotes, statistics also showed. Meanwhile, CBSL strengthened the administered ‘spot for the seventh consecutive market day to today, this time sharply, by 0.39 per cent (Rs 1.17) to Rs 295.52 to the dollar. A year ago CBSL kept the administered ‘spot’ unchanged at Rs 360.76 to the dollar, nonetheless seeing the steep YoY strengthening of the official ‘spot’ by 18.08 per
cent (Rs 65.24) to the dollar.
‘Spot’ trades are settled after two market days from the date of trading. CBSL the steward of Government of Sri Lanka (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.