CB prints Rs 28.4 billion

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By 2017-07-18

By Paneetha Ameresekere

Central Bank of Sri Lanka's (CBSL's) face value (FV) money printing (MP) holdings increased by Rs 28,381 million (22.29%) to Rs 155,703.54 million yesterday as CBSL aided Government of Sri Lanka (GoSL) to meet its monetary commitments in the absence of adequate revenue, interpretation of CBSL's open market operations (OMO) press releases showed.
But MP may cause inflationary pressure while increasing GoSL's debt liabilities. Further, inflation may cause socio-political instability in a country.

Nonetheless, as a result of MP, FV net excess liquidity in the market increased by Rs 30,730 million (220.76%) to Rs 16,810 million yesterday, whereas in the previous market days to Friday (14 July), the money market on a continuous basis was net short for 23 market days.

However, due to falling interest rates, GoSL's borrowing costs on account of MP declined by Rs 147.11 million (1.67%) to Rs 8,687.08 million yesterday.

Meanwhile, the money market (MM) also enjoyed a nominal net foreign inflow of Rs 2,349 million (US$ 15.27 million), probably led by foreign investments in the government securities market. Conversions are based on the middle rate of the 'spot' as at Thursday (13 July), which, according to sources was Rs 153.80 to the US dollar.
Further, on 15 July, 2016, $ 48.53 million (Rs 7,061.09 million) was creamed off for the purpose of GoSL's foreign debt servicing commitments, interpretation of the then OMO releases showed.

Conversions are based on the then benchmark but administered 'spot' value which was Rs 145.50 to the US dollar or thereabouts.
The MM was net short for the tenth consecutive market day then, with the FV net shortfall increasing by Rs 7,215 million (16.74%) to Rs 50,312 million on 15 July, 2016 over its 14 July 2016, figure, while its book value (BV) net shortfall figure increased by Rs 7,190.48 million (16.68%) to Rs 50,286.65 million due to the excess liquidity drain on account of GoSL's foreign debt servicing commitments. This shortfall was met from CBSL's reverse repo and standing lending facility windows.

Meanwhile, the BV of MP fell by Rs 129.39 million (0.06%) to Rs 226,903.2 million on 15 July, 2016.
On 15 July, 2016, due to CBSL controlling the 'spot' to minimize GoSL's debt liabilities, the market in order to find the true value of the dollar was dealing in 'spot next' and one week's forwards, respectively. B VMP is CBSL's direct Treasury (T)-Bill holdings while FVMP is CBSL's direct T-Bill holdings, plus interest payment due to CBSL from GoSL on account of MP. CBSL resorts to MP to aid GoSL to meet its monetary commitments in the absence of adequate revenue. 'Spot' trades are settled after two market days from the date of transaction, whereas in the case of 'spot next' it's three. As GoSL's foreign debt servicing commitments are usually met from CBSL's foreign reserves, after buying the required greenbacks by paying for them in the rupee equivalent in 'spot', a weak 'spot' will only go to increase GoSL's rupee debt costs. Therefore, at least then, the 'spot' was artificially inflated by the authorities to minimize such debt costs to GoSL.

Previously, CBSL in its OMO releases never gave the FV holdings of its T-Bills, inclusive of its direct and indirect holdings of such. It was only after the appointment of Dr. Indrajit Coomaraswamy as CBSL Governor last July that such data was also made available. Previously, only its BV holdings were shown.

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