Sri Lanka prints more money, piling pressure on rupee

ECONOMYNEXT – Sri Lanka has printed around 28 billion rupees to repay maturing Treasuries at last week’s auction data shows, piling pressure on the currency which fell to new record lows of 142.25 to the US dollar last week though it recovered amid bank dollar selling by the day’s end.

Excess liquidity interbank money markets climbed 134.8 billion rupees on Friday from 106 billion rupees a day earlier, after market bids were rejected for maturing Treasury bills at Wednesday’s auction.

Excess liquidity in money markets rose to 122 billion rupees on November 02 after the government converted sold them to the Central Bank and converted them to rupees. In addition the Central Bank also sterilized around a billion US dollars of forex purchases from the bond to build reserves, data show.

But excess liquidity dropped to 106 billion rupees by Thursday as the Central Bank intervened in forex markets to ‘mop up’ the rupees which were turning into imports through the banking system.

With more liquidity created on Friday, unless the Central Bank has to sell down at reserves collected on November 02 and mop up the liquidity when it hits the forex market, the rupee will continue to fall.

 

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