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Tuesday May 17th, 2022
Economy

Cabraal removes Sri Lanka bond auction price controls

ECONOMYNEXT – Sri Lanka has removed price controls from the upcoming bond auction on Tuesday a week after price controls on Treasury bills were lifted by newly re-appointed central bank Governor Nivard Cabraal.

The price controls led to failed bond auctions which were then bought by the central bank for reserve money which then triggered outflows greater than inflows through the balance of payments.

The new money was redeemed against foreign reserves triggering record balance of payments deficits.

The failure to sell bonds also prevented domestic savings from being channeled to the budget, for debt repayments and other spending.

A reduction in domestic consumption and investment by market driven bonds is required to reduce imports and help the government buy dollars from the market to repay debt on a net basis.

A day after Governor Cabraal came to office, price controls on last week’s Treasury bills were lifted.

Though only half the offered amount was sold data showed that only 2 billion rupees was printed on a net basis after the auction, taking the central bank’s treasury bill stock to 1332 billion rupees on settlement day, showing that the balance was with the central bank.

Given the shortage of forex reserves it is no clear why that two billion was also not raised from the market.

However raising more concerns, the central bank had injected 3-month money below the weighted average Treasuries yield.

Analysts say as part of future central banks laws to outlaw such actions and perhaps criminal penalties should be included in the monetary law. (Colombo/Sept26/2021)

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