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Sri Lanka money rates volatile, cash auction of Rs15bn

ECONOMYNEXT – Overnight money was quoted around 6.50 percent Friday, and moved down to 6.25/35 percent levels with state banks coming with offers around 6.30 percent, dealers said, with another reverse repo auction also announced.

Gilt backed repos were also quoted around 6.30/40 percent with liquid banks, which are mostly foreign not being able to lend to domestic players who are short of cash, due to counterparty risk limits.

The Central Bank is offering 15 billion rupees through a reverse repo auction to inject money in to the system, after cash auctions were resumed on Thursday.

The cash auctions inject money into the banking system at below the 7.5 percent ceiling policy rate, helping delay a correction to a domestic consumption and credit bubble, analysts say.

Excess liquidity in money markets were running out over the past eight months as domestic credit picked up, with state deficit spending and low interest rates discouraged savings and fired a consumption bubble.

Foreign investors are also selling out of bonds.

The Central Bank has announced a 15 billion rupees from a cash auction. On Thursday 7.1 billion rupees was injected through a cash auction a 6.2 percent, below the middle rate of the reverse repo corridor.


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