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Sri Lanka injects overnight cash at 6.19-pct

ECONOMYNEXT – Sri Lanka’s Central Bank has accepted bids to inject 7.1 billion rupees in overnight money at 6.19 percent through a reverse repo auction, dealers said, as liquidity ran out in money markets amid dollar outflows sending overnight rates up.

Dealers have bid around 6.2 percent at the auction, despite market rates being around 6.60 percent earlier in the day.

Analysts say the unusual collusive behaviour has set a new policy rate of around 6.2 percent.

In a well-functioning market auction rate should have been closer to the 7.50 percent ceiling policy rate corridor, when liquidity is short just as market rates are near the floor rate of 6.0 percent when there is excess liquidity amid low domestic credit and net inflows of dollars.

Sri Lanka last reverse repo auction was held on March 27, 2014 to briefly inject money when the Central Bank was at the same time withdrawing cash though term repo auctions.

But repeated reverse repo auctions to inject cash was seen in 2012 and 2013 during the last balance of payments crises.

In the past when the reverse repo volumes built up to 15 to 20 billion rupees and steady net outflows of dollars, they were permanently accommodated by rejecting bids at Treasury bill auctions and purchasing bills outright. (Colombo/Aug20/2015)

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