Sri Lanka keen to improve liquidity in gilt markets: CB Governor

COLOMBO (EconomyNext) – Sri Lanka’s Central Bank was keen to improve liquidity in bond markets which will see a longer market-determined yield curve emerging, Governor Arjuna Mahendran said.

That is a top priority. I will pledge that the Central Bank will do everything it can to push out liquidity over the duration of the curve and we create a benchmark yield curve where we create which you can price your credit risk", Mahendran told a business forum in Colombo organized by Fitch Ratings.

"It creates a more stable market where the pricing of credit becomes more reliable."

In gilt markets bonds are not liquid beyond 4 or 5 years and even on shorter durations there is not much depth.

Mahendran says Sri Lanka could also look at linking with foreign exchanges.

He said an investors in government Treasuries had suggested that they be listed in EuroClear. At the moment a foreign investor buying a rupee bond had open a special account and go through a local bank.

"So one way we can improve liquidity – I am not saying I will do this – is to do simple thing like listing our Treasuries on platforms like Euro Clear."

Mahendran said Sri Lanka in this stage of development had to look at capital markets rather than multilateral funding.