Sri Lanka injects overnight cash ahead of policy decision

ECONOMYNEXT – Sri Lanka injected 6.40 billion rupees in overnight cash into money markets, through a reverse repo auction ahead of a monetary policy decision later on Friday, as market liquidity fell amid forex outflows.

Excess liquidity in money market dropped from 45 billion rupees on February 09 to 11 billion rupees on February 17 indicating heavy interventions for officia or private payments.

On February 16, 3.0 billion rupees were injected at 6.59 percent, on February 17, 5.6 rupees were injected at 6.63 percent and on February 19, 3.0 billion rupees were injected at 6.65 percent.

In the interbank market overnight repo transaction are held at a ceiling of 6.75 percent at a threat of deal reversal and money at 6.95 percent, market participants said.

However some primary dealers are allowed to borrow a little higher.

Sri Lanka has an overnight policy corridor of 6.0 percent withdraw excess cash and 7.5 percent to inject money, but cash is given below the 7.5 percent rate through auction.

A monetary policy decision is due later on Friday.

At Wednesday’s Treasuries action only 5.0 billion rupees of bids were accepted from the market after offering 23 billion rupee of bills.

When auctions fail, the Central Bank buys bills with printed money injecting extra demand and generating pressure on the currency.

Market participants say at around 8.0 percent there is market demand for bills.





Banks of their own has raised one year deposit rates to around 8.0 to 9.0 percent from around 6.0 percent levels a year earlier.

While rates are kept down through a combination of moral suasion, reserve repo auctions and outright purchases of Treasury bills, the spot forex market is also under heavy moral suasion.

In forex market spot is not allowed to trade above 143.90 to the US dollar, but one week forwards go at 144.45/50 levels indicating an implicit spot rate of 143.30 to the US dollar. (Colombo/Feb19/2016)

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