Sri Lanka central bank rejects bids for Treasuries; printing expected

ECONOMYNEXT – Sri Lanka has rejected all bids to roll-over maturing bills at Wednesday’s auction, data from the state debt office showed, indicating that tens of billions of rupees of maturing bills will be repaid with printed money.
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The debt office, which is a unit of the Central Bank is repeating actions seen during previous balance of payments crises.
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Last week yields of 6 and 12 month bills went up.
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There are an estimated 29.6 billion rupees of maturing Treasuries this Friday, though some bills could be held by the Central Bank already.
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Repaying Treasuries with printed money adds rupee reserves to the banking system which then drives private credit higher triggering more imports.
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The central bank holds a 151 billion rupee portfolio of Treasuries now.
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On November 03, the Central Bank sterilized the proceeds of a billion US dollars of Treasury bills. By printing money the rupees are effectively released back to the broader economy.
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To prevent the rupee falling from the excess demand the currency has to be defended. In January over 40 billion rupees of excess liquidity was withdraw by raising the statutory reserve ratio.
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In January bond sales by foreign investors has also picked up pace in January. (Colombo/Jan27/2016)
 

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