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Friday December 9th, 2022

Sri Lanka liquidity drop amid money printing bout from fiscal repayment

ECONOMYNEXT – A distruptive drop in excess liquidity earlier in mid-August, just as large scale money printing from lender of last resort windows began at prices near the policy deposit rate, came from a repayment of central bank credit by the Treasury, it has been revealed.

On August 16, the stock of officially declared central bank Treasury bill holding came down to 77.8 billion rupees from 106.09 billion rupees, while the aggregate balance of the banking system dropped to 7.20 billion rupees from 34.61 billion rupees.

Once bought central bank held Treasury bills are a form of sterilization securities (like central bank securities) that can be sold down gradually, to mop up inflows, build forex reserves and stabilze the currency, bringing down interest rates over time, and giving stable enviroment for people to engage in growth creating activities, analysts say.

“If there is a decline in Treasury bill stock of the central bank it will certainly bring down the excess liquidity by that amount,” Deputy Governor Nandalal Weerasinghe told reporters in Colombo.

Deputy Governor S R Attygalle confirmed that the Treasury had repaid 25 billion rupees in central bank credit to the government.

According to central bank data the monetary authority had been printing money through multiple lender of last resort windows near the policy deposit rate from a week earlier.

From August 07, the central bank injected 20 billion rupees into the banking system through its overnight lending facility at 7.83 percent. 

By August 22 before the rate cut, money was being printed at 7.60 percent, with the lowest rate at 7.55 percent, just above the 7.50 policy deposit rate.

On August 13, 11.7 billion rupees was printed for 7 days at 7.8 percent, and another 10.5 billion rupees was printed for 7 days at 7.75 percent, gradually reducing lending on from the overnight window.

Until August 22 the central bank then printed up to 34.6 billion rupees though 7 and 14 day through term lender of last resort facilities at near the deposit rate eventually bringing the rate to almost the deposit rate of 7.55 percent.

Meanwhile more money was printed for terms up to 316 days through outright purchases of bills taking the declared Treasury bill stock back to 82 billion rupees.

On Friday 5.0 billion rupees was injected overnight at 7.31 percent after cutting the new policy deposit rate to 7.0 percent, in addition to the 32.1 billion rupees printed from term LOLR facilities.

“The central bank has been conducting open market operations to push the average weighted call money rate towards the lower bound,” Central Bank Governor Indrajit Coomarasamy told reporters.

The central bank’s Treasury bill stock including LOLR facilities is now at an estimated 119 billion rupees based on available data, up from before the ‘Treasury repayment’.

Before active large scale money printing began on August 11, the cental bank last mopped up inflows on July 7, when the bill stock was brought down from 118 to 108 billion rupees. Unsterlized excess liquidity was allowed to built up to 50 billion rupees by July 30.

The rupee soft-peg with the US dollar has broken and it is now sliding. The rupee closed at 175.35/45 to the US dollar on the day of the the last 10 billion rupees of inflows were mopped up.  On Friday the rupee closed at 179.70/180.00 in the spot market.

 The central bank is now selling dollars to defend its unstable soft-peg with the US dollar from falling further.

“If there is disorderly adjustment which is not aligned with the underlying fundamentals we will intervene in the market,” Central Bank Governor Indrajit Coomaraswamy said.

“In the last three days or so,  we think the pressure that has been there in the fx market, is not aligned with the underlying fundamentals

“We’ve seen this massive improvement in the trade account.

“There should be no earthly reason why this should be happening, other than some other factors that have arisen in the last few days.” (Colombo/Aug23/2019)


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Sri Lanka bond yields end higher, kerb dollar Rs370/371

ECONOMYNEXT – Sri Lanka bonds yields ended up and the T-bills eased on active trade on Friday, dealers said.

The US dollar was 370/371 rupees in the kerb.

“The bond rates went up, however more interest was seen in the short term bills by the investors” dealers said.

A bond maturing on 01.05.2024 closed at 31.90/32.20 percent on Friday, up from 31.25/70 percent at Thursday’s close.

A bond maturing on 15.05.2026 closed at 30.30/31.30 percent steady from 30.30/31.00 percent.

The three-month T-bills closed at 30.75/31.30 percent, down from 32.00/32.25 percent.

The Central Bank’s guidance peg for interbank transactions was at 363.18 rupees against the US dollar unchanged.

Commercial banks offered dollars for telegraphic transfers between 371.78 and 372.00 for small transactions, data showed.

Buying rates are between 361.78 – 362.00 rupees. (Colombo/Dec 09/2022)

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Foreign minister, US ambassador discuss future assistance to crisis-hit Sri Lanka

ECONOMYNEXT — In a meeting in Colombo, Sri Lanka Foreign Minister Ali Sabry and US Ambassador to Sri Lanka Julie Chung discussed ways in which the United States can continue to support Sri Lanka going forward, the Ambassador said.

Chung tweeted Friday December 09 afternoon that the two officials had reflected on the “twists and turns” of 2022, at the meeting.

Minister Sabry was recently in Washington D.C. where he US Secretary of State Antony Blinken.

A foreign ministry statement said the two officials held productive discussions at the Department of State on December 02 on further elevating bilateral relations in diverse spheres, including the 75th anniversary of diplomatic relations which will be marked in 2023.

Incidentally, Sri Lanka also celebrates the 75th anniversary of its independence from the British in 2023, and President Ranil Wickremesinghe has given himself and all parties that represent parliament a deadline to find a permanent solution to Sri Lanka’s decades-long ethnic issue.

The US has been vocal about Sri Lanka addressing concerns about its human rights record since the end of the civil war in 2009 and was a sponsor of the latest resolution on Sri Lanka passed by the United Nations Human Rights Council. Unlike previous resolutions, this year’s iteration makes specific reference to the country’s prevailing currency crisis and calls for investigations on corruption allegations.

In the lead up to the UNHRC sessions in Geneva, Minister Sabry Sri Lanka’s government under then new president Wickremesinghe does not want any confrontation with any international partner but will oppose any anti-constitutional move forced upon the country.

On the eve of the sessions on October 06, Sabry said countries such as the United States and the United Kingdom, who led the UNHRC core group on Sri Lanka, are greatly influenced by domestic-level lobbying by pressure groups from the Sri Lankan Tamil diaspora.

These pronouncements notwithstanding, the Wickremesnghe government has been making inroads to the West as well as India and Japan, eager to obtain their assistance in seeing Sri Lanka through the ongoing crisis.

The island nation has entered into a preliminary agreement with the International Monetary Fund (IMF) for an extended fund facility of 2.9 billion dollars to be disbursed over a period of four years, subject to a successful debt restructure programme and structural reforms.

Much depends on whether or not China agrees to restructure Sri Lanka’s 7.4 billion dollar outstanding debt to the emerging superpower. Beijing’s apparent hesitance to go for a swift restructure prompted Tamil National Alliance MP Shanakiyan Rasamanickam to warn of possible “go home, China” protests in Colombo, similar to the wave of protests that forced the exit of former pro-China President Gotabaya Rajapaksa.

The TNA will be a key player in upcoming talks with the Wickremesinghe government on a solution to Sri Lanka’s ethnic issue. (Colombo/Dec09/2022)

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India smogs out Sri Lanka’s China tower observers


ECONOMYNEXT – Sri Lanka’s Chinese-built Lotus Tower has halved visitors to its observation deck an official said as dirty air flowing from India triggered air quality warnings and schools in the capital closed.

“Masks are mandatory at the observation deck and roughly around 50 to 60 can go up to the observation deck at a time, time limits have not been altered and still persists at 20 minutes for observation,” the official told EconomyNext.

Prior to the smog, 120 observers were permitted at once to the deck.

However, even after limitations the Lotus Tower has continued to draw visitors, and revenues are coming in, the official said.

The tower built with a Chinese loan by the cash rich Telecom Regulatory Commission has been described by critics as a white elephant that eats the money earned from telecom operators mainly as spectrum fees.

Sri Lanka’s National Building Research Organization (NBRO) said India air heavily polluted with particulate matter was flowing across the island into a depression in the South West Bengal Bay. (Colombo/Dec09/2022)



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