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Sri Lanka fails to sell 32-pct of Treasuries at auction

ECONOMYNEXT – Sri Lanka has failed to sell 32 percent of a 40 billion rupee Treasuries offered at an ‘auction’ where a yield for each maturity is pre-determined by the debt office and unsold securities are converted to base money through central bank credit.

The debt office, which is a unit of the central bank pre-set ceiling yields of 4.67 percent for 3-months, 4.78 percent for 6-months and 5.01 percent for 12-months.

At the December 16 auction, 12 billion rupees of 3-month bills were offered and 7.137 billion was sold at 4.67 percent.

In 6-month bills, 9.0 billion rupees were offered and 2.565 billion rupees were sold at 4.78 percent up one basis point from last week.

In 12-month bills 19 billion 12-month bills were offered and 17.140 billion was sold at 5.1 percent.

Sri Lanka had severe financial repression, currency troubles and inflation until the mid-1990s through pre-determined yields in longer term bonds (rupee securities) and wholesale purchases of Treasuries by the central bank, before reforms by then Central Bank Governor A S Jayewardene.

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Sri Lanka fails to sell 60-pct of bills at Treasuries auction under explicit price ceiling

Financial repression was gradually ramped up in during last regime, through forced sales of bonds to primary dealers, price controls on lending and deposit rates.

Now longer term housing loans are also under a ceiling rate of 7 percent.

Sri Lanka had seen a steady erosion of forex reserves though the financial account, though current transactions were limited at least until October due to weak private credit, despite large volumes of liquidity being injected.

However credit has been picking up over the past three months.

A part of the liquidity had been absorbed by debt repayments. To be able to repay foreign loans, a government must be successful in selling securities in the domestic market, so that reserve money is not expanded triggering forex shortages analysts say. (Colombo/Dec17/2020)

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