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Sunday October 24th, 2021
Economy

Sri Lanka could run out of ink due to money printing: legislator

ECONOMYNEXT – Sri Lanka is in danger of running out of ink at the rate money is being printed opposition legislator Mujiber Rahuman said as emergency laws were invoked to seize food stocks as foreign exchange shortages and price controls created shortages.

“What has the government done during the last one and a half years?” opposition legislator Mujiber Rahuman questioned in a parliament which was debating the emergency laws.

“They have done one thing correctly. That is the printing 1,250 billion rupees. We feel money will be printed until the ink in the country is finished.”

Sri Lanka has printed record amounts of money to keep interest rates down in a ‘monetary stimulus’ triggering a balance of payments deficit of 2.3 billion US dollars in 2020 and a similar amount in 2021.

Foreign reserves fell to 2.8 billion US dollars in July and in August the central bank got a 150 million US dollars from a swap with Bangladesh’s central bank which had better monetary policy and maintained its peg around 87 to the US dollar for over a decade.

“Sri Lanka has set a record as the first country to get a loan from Bangladesh,” Rahuman observed.

On Friday 39 billion rupees were printed after a Treasury bill auction failed due to a yield controlled auction taking the total treasury securities owned by the central bank to 1,261 billion rupees.

Large volumes of printed money to pay state workers or injected to the banking system to keep rates down has triggered forex shortages and the new rupee have created import demand in excess of dollar inflows.

Similar problems had taken place in the 1970s when the central bank also was a top buyer of Treasury bills.

Analsyts have urged authorities to get the bond auctions working again to stop liquidity injections and help end forex shortages.

In August the central bank raised its overnight policy rate to 6.0 percent from 5.5 percent, but bond auctions remain under price controls triggering more money printing.

Rahuman said the central bank is publishing a rate of 202 to the US dollar in its website but importers had to pay around 230 to 231 to get US dollars from commercial banks.

Most countries that print money and have forex troubles have problems with imports and rising prices, leading to price controls and other interventions.

Price controls then reduces supplies or drive them underground, creating shortages and black markets. (Colombo/Sept06/2021)

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