Sri Lanka fails to sell 30-pct of bills at auction with higher rate ceiling
ECONOMYNEXT – Sri Lanka has failed to sell 30 percent of Treasury bills offered at the weekly auction with average yields hitting a higher rate ceiling after the debt office failed to sell 60 percent of the offered volumes last week.
The debt office, which is a unit of the central bank offered 35.5 billion rupees of bills at the auction and sold only 24.71 billion rupees as average yields hit a new rate ceiling.
The debt office offered 6.0 billion rupees of bills 3-month bills and sold 9.15 billion rupees at an average yield of 4.67 percent which is a pre-announced rate ceiling.
Out of 11.5 billion rupees in 6-month bills offered 8.16 billion rupees of bills were sold at an average of 4.76 percent, up from 4.68 percent last week.
Out of 18.0 billion rupees of 12-month bills offered only 7.4 billion rupees of bills were sold at an average of 4.94 percent up from 4.86 percent.
It is not clear why a rate ceiling is set if there is an auction but as the debt office is a unit of the central bank, it can print the balance and turn paper debt into reserve money.
Last week the debt office failed to sell 60 percent of the offered bills due to the rate ceiling. Later data showed about 19 billion rupees printed with the central bank’s Treasury bill stock going up to 309 billion rupees from 290 billion rupees.
The central bank in the past had triggered currency crises by purchasing bills without a pre-declared rate ceiling to target gilt yield in pro-cyclical monetizing of debt (printing money or turning debt instruments into reserve money).
Sri Lanka’s private credit has been negative in May and June, which means the likelihood of the new money hitting the forex market is not certain, but the budget deficit is expanding with low tax revenues.
After March and April money printing Sri Lanka is under a trade lockdown. (Colombo/Aug05/2020)