ECONOMYNEXT – Sri Lanka’s state borrowings from the central bank spiked to a record 106.6 billion rupees in January 2016, despite a reserve ratio hike withdrawing some cash from the banking system in the month, data shows.
Credit to private business rose by 43.6 billion rupees to 2,395 billion rupees, almost the same as December’s 43.6 billion rupees and was up 26.7 percent from a year earlier.
Credit to state enterprises rose 4.6 billion rupees to 527.6 billion rupees.
Out of 108.5 billion rupees borrowed from the banking sector borrowed by the state, 106.6 billion rupees came from the central bank.
Central Bank credit to the state rose to 336.5 billion rupees in January 2016, up from 229.9 billion rupees in January, probably the highest monthly rise in central bank credit seen in the history of the monetary authority.
In January the Treasury usually takes a printed money overdraft known as a provisional advance from the central bank, which however have become a permanent overdraft.
To neutralize the negative effect of the provisional advance the central bank either has to sell central bank securities, sell-down any Treasury bills it has bought earlier to create money or push up the reserve ratio.
Though the reserve ratio was raised in January, the central bank bought Treasury bills to print fresh money in the second half of the month. During the month 303 million dollars were sold to the interbank markets to mop up rupees in the forex market.
Analysts say amending Sri Lanka’s monetary law to prevent provisional advances should be one of the key reforms to return the country to sound money to that impoverishment of the population from currency collapses and inflation. (Colombo/April06/2016)