ECONOMYNEXT – Sri Lanka has printed 6.0 billion rupees after a bond auction failed to sell sufficient securities to the public amid price controls, on top of an earlier bill auction, data shows.
The debt office called a 50 billion rupee bond auction on August 30, but raised only 4.0 billion rupees, amid price controls (ceiling yields) which has made auctions dysfunctional.
The previous week after failing to sell all Treasury bills at an auction on August 25, 12 billion rupees was printed on the settlement day, taking the central bank’s Treasury bill stock to 1,215.1 billion rupees from 1,203.44 billion rupees.
On September 01, the settlement day of the August 30 bond auction, the Treasuries stock of the central bank went up to 1,221.1 billion rupees from 1,203.4 billion rupees.
This week bonds were sold as a coupon payment fell due and there were no large maturities.
With effect from September 01, the central bank also raised its statutory reserve ratio, or the share of deposits that banks must keep with the monetary authority, sucking up the newly printed money.
The overnight call money market rate hit the ceiling 6.0 percent rate, on September 01.
The central bank is defending a pattern of interest rates in the bills and bond markets through bill auctions.
The US Federal Reserve is also firing a global commodity bubble by purchasing bonds in a so-called Powell Bubble. In 1951 however Fed Governor Marriner Eccles ended a bubble famously getting independence for the Treasury.
“You only protect the public credit by maintaining confidence in the Government and in its securities and to the extent the public will buy and hold those securities,” Eccles said in 1951.
“The thing we are doing is to make it possible for the public to convert Government securities into money and to expand the money supply of this country by $7 billion in six months.
“We are almost solely responsible for this inflation…the whole question of having rationing and price controls is due to the fact that we have this monetary inflation, and this Committee is the only agency in existence that can curb and stop the growth of money.”
In the broader economy persistent forex shortages from liquidity injections have depreciated the rupee creating difficulties for importers of basic goods.
Authorities seized the stocks of five private sugar firms charging them of ‘hoarding’ and said they will be sold at controlled prices.
Sri Lanka’s State Minister for Consumer Affairs had said earlier that companies had imported goods on 6-month credit and they expected to pay higher rates for dollars in the future.
Similar claims had been made against businesses and people holding stocks in the 1970s when also the central bought bonds, boosted rupee reserves of banks and lost foreign exchange reserves of the central bank. (Colombo/Sept01/2021)