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Sri Lanka fails to sell 27-pct of offered bonds at auction

ECONOMYNEXT – Sri Lanka has failed to sell 27 percent of offered bonds at an auction of 125 billion rupees of 2 to 7 year bonds, data from the state debt office showed.

The debt office sold 14.4 billion rupees of 15.112023 bonds at 6.25 percent after offering 25 billion rupees of securities.

17.85 billion rupees of 15.08.2024 bonds were sold after offering 30 billion at 6.70 percent.

20 billion rupees of 15.01.2026 bonds were sold after offering 30 billion at 7.07 percent.

28.5 billion rupees of 01.07.2028 bonds were sold after offering 40 billion rupees at 7.57 percent.

The debt office offered 125 billion rupees of bonds and sold only 90.95 billion rupees.

Over the past 12 months Sri Lanka’s central bank has bought over 700 billion rupees of mainly Treasury bills into its balance sheet injecting liquidity and triggering pressure on a currency peg and generating a 2.3 billion dollar balance of payments deficit in the calendar year.

During the ousted United National Party led administration the central bank unceremoniously jettisoned a ‘bills only’ policy set by former Central Bank Governor A S Jayewardene and started targeting the long end of the yield curve with printed money.

The bids have to be settled on March 01. There are around 109 billion rupees of maturing bonds this week. It is not clear whether the balance would be settled with printed money or overdrawing state banks.

Critics have said that a so-called ‘buffer strategy’ involving under-selling bonds at auction and repaying them with central bank re-financed overdrafts helped trigger monetary instability in 2018 and weaken credibility of the island’s dollar peg leading to an output shock. (Colombo/Feb25/2021)

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