Due to Central Bank's (CB's) continued protection of the rupee amidst depreciating pressure because of foreign exits and dearth in inflows, the money market was short for a record fifth consecutive day at yesterday's trading.
It was short by Rs 4,812 million yesterday; which shortfall was met from CB's overnight reverse repo window at a weighted average yield of 6.15%.
Meanwhile, the other four consecutive days, which made up to yesterday's 5th consecutive day of money market shortfall saw the first taking place last Tuesday (18 August) when the money market was short by Rs 1,870 million in certain counters; on the following day Wednesday it was short by Rs 3,250 million; Thursday (Rs 7,164 million); Friday (Rs 8,730 million) respectively.
The last time the market was short like this for a considerable period of time on a consecutive basis similar to the present context was two years ago. That happened on two consecutive occasions in 2013. The first was from Friday, 3 May, 2013 to 10 May, 2013; a total of six consecutive days and the other from 24 July, 2013 to 31 July, 2013; also comprising six consecutive market days.
The market in the first time in 2013, it was short by Rs 5,000 million (3 May, 2013); Rs 3,550 million (6 May, 2013); Rs five million (7 May, 2013); Rs 1,515 million ( 8 May, 2013); Rs 1,026 million (9 May, 2013) and Rs 2,300 million (10 May, 2013) respectively.
On the other occasion in 2013 it was short by Rs 1,062 million on 24 July, 2013; Rs 6,289 million (25 July, 2013); Rs 3,030 million (26 July, 2013); Rs 2,750 million (29 July, 2013); Rs 539 million (30 July, 2013) and Rs 13,127 million (31 July, 2013) respectively.
These shortfalls were met from CB's reverse repo window and/or its standing lending facility.
Yesterday, US$ 24.73 million was frittered away from CB's foreign reserves in defence of the rupee, as a result of which Rs 3,311 million was absorbed from the money market's excess liquidity value, the latter ending up poorer by that sum.
Money printing yesterday stood at Rs 92,441.08 million and market's net excess liquidity: Rs 43,414 million. Money printing comprised 212.93% of net excess liquidity yesterday, thereby stoking demand side inflationary pressure on the economy.
Courtesy: Ceylon Financial Today 25 August 2015