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Thursday March 23rd, 2023

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)

Comments (1)

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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 establishes committee to investigate aircraft incidents

An aircraft lands at the Jaffna International Airport, which was opened in October 2019 and promises to push the tourism frontiers in Jaffna.

ECONOMYNEXT: Sri Lanka’s has established an expert committee under the state-run Civil Aviation Authority to investigate aircraft accidents and to implement precautionary methods in the Sri Lankan airspace, an Official said.

“Even if it is only one flight, there is a chance an accident may occur,” Civil Aviation Authority of Sri Lanka, Director General, P. A. Jayakantha said.

“This particular committee is there to investigate aircraft accidents and act as a mechanism to take over if something goes wrong”.

Sri Lanka has encountered around 2,700 minor aircraft accidents and incidents mostly on the ground in the 19 years through 2021, the CAA annual reports showed.

The new committee will analyze the past accidents and take precautionary measures while also conducting investigations and provide independent reports in the future, Jayakantha said.

The team is provided with required training and qualifications by the CAA along with an International organization, free of charge.

“Internationally also it is a requirement to have a team to investigate the aircraft accidents,” Jayakantha added.

“For a long time we have not fulfilled this requirement and that is why we established this team with the cabinet approval. Moreover, recently, Sri Lanka’s two aircrafts, one training aircraft and a commercial aircraft met an accident”

The committee will be on active duty, until the Accident Investigation Act is passed and a proper Aircraft Accident and Incident Investigation Bureau is established. (Colombo/ Mar23/2023)

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Sri Lanka bond yields steady, Rupee 319/325 at close

ECONOMYNEXT – Sri Lanka’s treasury bond yields closed steady on Thursday while rupee closed weaker, dealers said.

A 01.07.2025 bond closed at 30.60/31.00 percent on Tuesday, down from 30.25/75 percent on Wednesday.

A 15.09.2027 bond closed at 27.80/28.10 percent, steady from 27.90/28.00 percent from Wednesday.

Sri Lanka rupee closed at 319/325 against the US dollar depreciating from 318/320 from a day earlier. (Colombo/ March23/2023)

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Sri Lanka shares dive to two-week low on local debt restructuring fears

ECONOMYNEXT – The Sri Lanka market fell for a fourth session to a two-week low on Thursday, led by financials, as worries over domestic debt restructuring continued after the IMF loan was approved earlier this week resulting in investors adopting a wait-and-see approach until further clarity was provided, analysts said.

The main All Share Price Index (ASPI) closed down 1.38 percent or 131.07 points to 9,395.98, lowest since March 02.

Analysts said, majority of the banks have been on slower investment trends on fears of domestic debt restructuring after the IMF approval and waiting for more clarity on the local debt restructuring.

“The market is on muted sentiments despite the IMF loan being approved and is going through a period of consolidation,” Ranjan Ranatunga of First Capital Holdings said.

The market saw a net foreign outflow of 298 million rupees and the total offshore inflows recorded so far in 2023 to 3.3 billion rupees.

The most liquid index, S&P SL20, closed 1.64 percent, or 45.33 points, down at 2,722.94.

The market saw a turnover of 3.4 billion rupees on Thursday, above this year’s daily average of 1.8 billion rupees.

This is the highest turnover generated since March 08, which is when the market was driven off of positive sentiments from International Monetary Fund deal hope after Chinese assurances.

Top contributors to revenue was Agalawatte Plantations, on off board transactions of a stake change, contributing revenue of 1.6 billion rupees, Ranatunga said.

Top contributors to revenue industry wise was Food and Beverage and Telecommunications.

Sri Lanka Telecom has been seeing positive uptrends as the Secretary to the Treasury has informed the Board of Directors of Sri Lanka Telecom PLC (SLT) and Lanka Hospitals PLC that the Cabinet of Ministers has granted approval in principle for the divestment of the stakes held by the Treasury Secretary in the two companies.

Top losers were Sampath Bank, Hatton National Bank and Commercial Bank.

Sri Lanka is looking at options to re-structure domestic debt, or local law local currency debt (LLLC), without harming the banking sector and announce them the International Monetary Fund said in a report.

Banks have been witnessing profit taking and selling pressures after continuous uptrends prior to the IMF loan had been approved.

Analysts said, selling pressures is expected to ease as the IMF hopes to reduce inflationary pressures which will in turn lead to reductions in interest rates. (Colombo/Mar23/2023)

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