ECONOMYNEXT – Sri Lanka’s banks borrowed 31.5 billion rupees from the central bank’s overnight window where money is printed at 8.0 percent, the highest volume seen during the current currency crisis.
Borrowings from the central bank’s ‘standing deposit facility’ window surged to 31.5 billion rupees on March 31 from 20.2 billion rupees a day earlier as banks loaned money beyond the deposits or real money they were able to get from interbank markets.
Other banks, which are liquid deposited about 14.4 billion rupees in the central bank’s excess liquidity window.
The total net short in the market rose to 17.0 billion rupees, also highest during the current currency crisis. The net short rose from 7 billion rupees a day earlier, indicating net foreign exchange outflows of about 50 million US dollars.
On Friday, the central bank is expected to repay some Treasury bills with printed money and permanently inject rupee reserves (sterilize the intervention) to allow banks to give more credit and perpetuate pressure on the rupee.
Though the central bank offered to sell 21 billion rupees of maturing bills, Wednesday, which are settled tomorrow, only bids of 7.0 billion rupees were accepted.
Analysts have warned that as long as the central bank continues to inject reserves into the banking system by repaying maturing bills with printed money, the rupee will continue to come under pressure, regardless of the market interest rate.
Keeping the overnight markets short to force banks to raise deposits is however a slight improvement on the earlier policy of buying larger volumes of Treasury bills to generate and overnight liquidity excess and drive credit growth even higher.
Market interest rates are rising however as banks scramble to raise deposits.
Earlier this week, the central bank kept rates frozen.
In interbank money markets, overnight rates rose as much as 8.10 percent, above the policy rate window where banks could borrow at 8.0 percent by giving Treasuries.
In the gilt-backed repo market, where non-bank dealers also operate, overnight rate rose as far at 8.75 percent, or 75 basis points above the window rate.
In forex markets the spot next US dollar was quoted at 149.20/35 rupees. (Colombo/Mar31/2016)