Slack demand led by import controls saw the benchmark ‘spot’ strengthening for the second consecutive market day to today, this time too steeply, gaining by between Rs 1.50 and Rs one (0.51- 0.34 per cent), to be trading at Rs 290.50/291.50 to the US dollar in two way quotes, thereby deflating cost-push inflationary pressure, market sources who didn’t want to be named told ‘BMD.’
Consequently, year on year (YoY) to today, the ‘spot’ has steeply gained by between Rs 69.50 and Rs73.50 (19.31-20.14 per cent) to the dollar in two way quotes. A year ago the ‘spot’ was trading unchanged for the fourteenth consecutive market day to Friday 3 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 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,’ that helps to strengthen the rupee, due to a lack of dollar demand led by import controls and bans.
Meanwhile, CBSL weakened the administered ‘spot’ by 0.01 per cent (three cents) to Rs 292.31 to the dollar today. However, a year ago CBSL strengthened the administered ‘spot’ by 0.08 per cent (30 cents) to Rs 360.30 to the dollar. Nonetheless, YoY to today, the administered ‘spot’ has sharply strengthened by 18.87 per cent (Rs 67.99) 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.