Led by swap settlements between the Government of Sri Lanka (GoSL) and the Central Bank of Sri Lanka (CBSL), where the former swapped US dollars with the latter, saw liquidity increase by Rs 193,045 million (US$ 603.32 million) during trading yesterday. Conversions are based on last Monday’s (10 April) administered ‘spot’ value which was Rs 319.97 to the US dollar. Swaps between GoSL and CBSL are foreign reserves neutral.
GoSL’s demand-pull inflationary face value money printing (FVMP) debt increased by Rs 5,490 million today due to a sustained lack of revenue, thereby increasing GoSL’s FVMP debt as a whole by 0.19 per cent to Rs 2,966,750.44 million (Rs 2.9668 trillion).
Subsequently, market’s net shortfall decreased for the second consecutive market day to yesterday, this time by 68.03 per cent (Rs 198,535 million) to Rs 93,280 million.
GoSL’s at least direct, theoretical MP borrowing costs (BCs) steeply decreased for the second consecutive market day to today, this time by 2.45 per cent (Rs 1,787.90 million) to Rs 71,183.25 million, led by investor preference to invest in high yielding Treasury (T) Bonds and T Bills in secondary market trading rather than lend 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 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.