CBSL subsidizes foreigners at taxpayers' expense

CBSL subsidizes foreigners at taxpayers' expense

Ceylon Finance Today: Rs 1,608 million worth of excess liquidity was drawn down from the money market at Thursday's (26 February) trading for the defence of the rupee in the foreign exchange (FX) market and/or Government of Sri Lanka's foreign debt servicing commitments, data showed. With the exchange rate being defended at Rs 132.90 to the US Dollar in interbank, administered spot trading, this amounts to a measly sum of US$ 12.1 million being drawn down from Central Bank of Sri Lanka's (CBSL's) reserves in order to protect the rupee.

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Ceylontoday, 2015-03-01 02:00:00

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CBSL subsidizes foreigners at taxpayers' expense

By Paneetha Ameresekere

Ceylon Finance Today: Rs 1,608 million worth of excess liquidity was drawn down from the money market at Thursday's (26 February) trading for the defence of the rupee in the foreign exchange (FX) market and/or Government of Sri Lanka's foreign debt servicing commitments, data showed. With the exchange rate being defended at Rs 132.90 to the US Dollar in interbank, administered spot trading, this amounts to a measly sum of US$ 12.1 million being drawn down from Central Bank of Sri Lanka's (CBSL's) reserves in order to protect the rupee.

Meanwhile, Friday's trading also saw a net foreign outflow of Rs 163.6 million (US$ 1.2 million) from the Colombo stock market, causing further downward pressure on the country's reserves volumes. Paying foreigners, exiting from the bourse, dollars at a discounted price of
Rs 132.90 per dollar unit is akin to subsidizing foreigners at the expense of the tax payer, market sources told Ceylon FT.
In related developments, CBSL accepted offers for Rs 50 billion at three-term repo auctions held on Thursday (26 February) to capture
Rs 66.4 billion worth of maturing repos which realized on Friday
(27 February).

Thursday's excess liquidity amounted to Rs 16.2 billion, less than the previous day's figure of Rs 17.8 billion.
Meanwhile, the weighted average yields of Thursday's three term repo auctions fetched 5.95%, 5.99% and six per cent respectively, far greater than CBSL's effective standing deposit facility rate of five per cent. CBSL wants to satisfy those who live off the fixed interest income market prior to the expected general elections of June in order to win their votes, hence the reason behind the uplift of rates, sources told Ceylon FT.

Meanwhile, data showed that with excess liquidity held by a handful of banks, the weighted average rate of call money went up by a massive 17 basis points (bps) to 6.18% and those of overnight market repo transactions by 29 bps to 5.90% at Friday's trading.
In order to further uplift rates to appease those who live off the fixed interest rate market, CBSL held an overnight market repo auction which absorbed Rs 10 billion worth of excess liquidity at a weighted average yield of 6.13%, 113 bps more than CBSL's effective standing deposit facility rate of 5%, at Friday's trading.