Sri Lanka bank liquidity shortage drops after festival

ECONOMYNEXT – A liquidity shortage in Sri Lanka’s interbank markets which has dropped sharply as cash withdrawn from the banking system has started to come back to the system, data from the central bank showed.

Overnight cash injections which peaked at 65 billion rupees on April 12, dropped to 5 billion rupees on Monday and there were no cash injection on Tuesday.

Market participants borrowed 11.4 billion rupees from the central bank’s liquidity window and banks that are plus liquidity, which are mainly foreign banks, deposited 12.1 billion rupees in excess liquidity window

Sri Lanka’s reserve money (the monetary base) rose from 791 billion rupees on March 31, to 861 billion rupees on April 14 as bank customers drew cash out for the festival season.

As of April 07 the monetary base was down to 825 billion rupees.

The Central Bank’s Treasury bill stock which rose from 221 billion rupees on March 31 to 308 billion rupees on April 12 has dropped back to 234 billion rupees on April 25.

The data indicates that in April domestic credit had slowed or most of the credit had been financed by real deposits and dollar inflows, compared to 2015. In April 2015, the central banks also cut rates and lit a fuse under the currency.

Banks which were offering around 6 to 7 percent for fixed deposits are now offering 10 percent, indicating that a much needed correction had happened to the credit system.

Meanwhile the central bank tightened exchange controls, asking exporters to bring back dollars in three months, restrictions not used since 1993, taking some analysts by surprise. (Colombo/Apr26/2016)





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