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Thursday June 20th, 2024

In Sri Lanka reserve money expansion is ‘proper’ money printing: CB Governor

ECONOMYNEXT – In Sri Lanka a rise in reserve money (as calculated officially) is considered ‘proper money printing’, which had slowed in recent periods, Central Bank Governor Nandalal Weerasinghe said.

“When we look at the recent data, in terms of the amount of reserve money expansion by the central bank which is in proper terms is what is called money printing, in fact has been decelerating,” Governor Weerasinghe said told reporters in Colombo.

“Also our subscriptions to auctions, as you all know over the last several weeks we have been raising full amounts from the markets, without the central bank subscribing.

“That is one way of increasing reserve money. We have curtailed that part as well.”

Governor Weerasinghe allowed rates to go up and effectively stopped money printing bringing back external stability and allowed inflation to fall, possibly ending hyper-inflation and market dollarization that generally follow.

In Sri Lanka, excess liquidity (excess reserves above what is required by the statutory reserve ratio), which is available for final clearing of transactions is not considered reserve money.

The excess liquidity available for final clearing of transactions is also directly exchangeable for dollars and can be used for imports if loaned out.

The money, which is a domestic liability of the central bank, then trigger forex shortages gradually disappearing as a foreign reserve depletion at the given flexible exchange rate as they are redeemed against fx reserves, which is a foreign asset.

In the current crisis, large volumes of excess reserves have been deposited in the central bank overnight window by a few risk averse banks.

During the time bond auctions were rejected in 2020 and 2021, the cash was deposited the overnigh window pending loaning to customers or government and the fx reserve losses that follow.

In Sri Lanka ‘reserve money’ or reserve money (as defined), also collapses like a stone in a single day when the SRR cut cut though the money is available for final transactions in the same day and had disappeared later as foreign reserve losses.

When the SRR is hiked amid forex shortages, large overnight liquidity shortages (borrowed reserves) appear in the banking system and reserve money as defined rises.

In Sri Lanka reserve money is defined broadly as the SRR and notes and coins in circulation, and excess reserves (deposits in the SDF window beyond SRR requirement) appear to be effectively excluded. (Colombo/Feb05/2023)

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  1. Tamailrajan says:

    It would be better if you use/explain what the terms SRR and SDF stand for and explain for readers like me who have limited knowledge in the field…

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  1. Tamailrajan says:

    It would be better if you use/explain what the terms SRR and SDF stand for and explain for readers like me who have limited knowledge in the field…

Sri Lanka shares debt management experience at global forum

ECONOMYNEXT – Sri Lanka has shared its experiences at a forum on debt management to “provide lessons for others”, State Minister of Finance Shehan Semasinghe has said.

Semasinghe spoke on “The Role of Debt Management in Navigating Crises” at the 14th Debt Management Facility (DMF) Stakeholders’ Forum, in Livingstone, Zambia.

“I shared the experiences of Sri Lanka which can provide valuable lessons for others and explored the critical elements of capacity building and sound institutional practices in managing debt, particularly in the context of economic challenges,” Semasinghe said on X (twitter).

“Sri Lanka’s experience demonstrates that effective debt management is not just about managing numbers but also about building robust institutions and capacities.”

The journey underscores the importance of transparent, accountable governance and the need for international support and cooperation in times of crisis, he said.

“Sri Lanka prioritized addressing gaps in public debt management by drafting a consolidated Public Debt Management Act, ensuring clarity and legal robustness and establishing a centralized Public Debt Management Office with operational autonomy.

“The role of debt management in navigating crises is multifaceted and critical. Further, by investing in capacity building, adhering to sound institutional practices, and strategically managing debt restructuring and liability operations, countries can better withstand economic shocks and pave the way for sustainable recovery.”

Developing countries face severe debt distress as they are more vulnerable to external shocks, Semasinghe said, and “managing global debt requires coordinated international efforts on debt restructuring where necessary, timely fiscal policy adaptation and help sustainable economic growth.”

The state minister also pointed out the financial impact of climate change was an emerging challenge, as countries need investment to mitigate and adapt to climate impacts, “especially through non-debt creating inflows, which would require private capital mobilization.” (Colombo/Jun20/2024)

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Sri Lanka rupee closes stronger at 305.10/30 to US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed stronger ahead of the long weekend at 305.10/30 to the US dollar on Thursday, up from 305.40/55 to the US dollar Wednesday, dealers said, while some bond yields edged up.

A bond maturing on 15.12.2026 closed at 10.45/80 percent, up from 10.35/75 percent.

A bond maturing on 01.07.2028 closed at 11.20/45 percent.

A bond maturing on 15.09.2029 closed at 12.00/15 percent, up from 11.95/12.35 percent.

A bond maturing on 01.12.2031 closed at 12.05/25 percent.

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Sri Lanka stocks close up, JKH trade pushes turnover

ECONOMYNEXT – The Colombo Stock Exchange closed up on Thursday, data on its site showed.

The broader All Share Index closed up 0.19 percent, or 23.11 points, at 12,249; while the more liquid S&P SL20 Index closed up 0.15 percent, or 5.33 points, at 3,610.

Turnover was 2 billion. Nearly half of this (Rs980mn) came from a crossing on John Keells Holdings Plc. The share closed down at 202.00.

“There were several crossings today which pushed turnover,” market participants said.

“Institutions and high net-worth activity drove the market, while the retail investors we feel are still about uncertain and adopting a wait-and-see approach.”

Melstacorp Plc was among the companies that saw active volumes (Rs194mn) in the day. The share closed up at 87.10.

Top contributors to the index included TeeJay Lanka Plc (up at 41.70), Sampath Bank Plc (up at 79.50), Hatton National Bank Plc (down at 201.00). Hayleys Plc (up at 105.00) and its subsidiary Hayleys Fabric Plc (up at 46.60) were also positive contributors. (Colombo/Jun20/2024)

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