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Sri Lanka part settles billion dollar Federal Reserve repo

ECONOMYNEXT – Sri Lanka has settled half of a billion US dollar repo transaction with the Federal Reserve, executed last year official data shows.

Sri Lanka executed the repo with the Federal Reserve in September 2020, as dollar liquidity facility made available to smaller central banks that did not qualify for Fed swap lines against their own currency.

Sri Lanka has settled 500 million dollars of the billion dollar facility in February 2021.

In March another 500 million dollar repo falls due.

The repo deals do not make a difference to the central bank’s reserves as the money is borrowed against US dollar securities.

The repo facility allows the Fed to provide dollar liquidity to stressed markets without putting too much pressure on domestic bond yields by preventing money printing third world central banks from selling US bonds as soft-pegs come under pressure.

It also allow third world banks to get liquidity without the transaction cost of selling bonds in the open market and allow them to wait till bonds mature.

Sri Lanka’s foreign reserves have eroded steadily amid unprecedented money printing. (Colombo/Apr06/2021)

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