Rupee Strengthens on CBSL’s Pause

Central Bank of Sri Lanka’s (CBSL’s) absence from tCBSL’s Absence Strengthens ‘Spot’he market after a lapse of two market days saw the benchmark ‘spot’ strengthen by a rupee each (0.33 per cent both ways) in two way quotes to be trading at Rs 305.50/306.00 to the US dollar yesterday, sources who didn’t want to be named told ‘BMD.’

Subsequently, year on year (YoY) to yesterday the ‘spot’ has steeply gained by between Rs 54.50-59.00 (15.14-16.16 per cent) to the dollar in two way quotes, thereby squashing demand-pull inflationary pressure.

A year ago the ‘spot’ was trading unchanged for the fourth market day to Friday 20 May 2022 at Rs 360/365 to the dollar in two way quotes, statistics also showed. CBSL buys dollars from the market to strengthen the country’s parlous foreign reserves, but at the expense of weakening the rupee.

However, CBSL for the first time after 13 consecutive market days weakened the administered ‘spot’ yesterday and that too sharply, by 0.43 per cent (Rs 1.30) to Rs 307.08 to the dollar, after previously strengthening it.

Nonetheless a year ago, CBSL artificially strengthened the administered ‘spot’ for the fourth
consecutive market day, this time also by 0.02 per cent (Rs 0.07) to Rs 359.48 to the dollar, nevertheless resulting in a steep YoY strengthening of the official ‘spot’ by 14.58 per cent (Rs 52.40) to the dollar by yesterday.

‘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.