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Sunday September 19th, 2021
Economy

Sri Lanka prints Rs29bn as price controls undermine bill auction

ECONOMYNEXT – Sri Lanka has printed over 29 billion rupees after a Treasuries auction failed to sell bills to public amid price controls, central bank data shows.

The central bank’s stock of Treasury bills and bond rose to 1,290.36 billion rupees on Friday September 10 the settlement day of the weekly auction from 1,261.07 billion rupees a day earlier.

On Wednesday the debt office offered 64 billion rupees of bonds, but only 30.7 billion rupees were sold due to a 6.05 percent ceiling rate on the 12-month maturity.

The liquidity injected however has been sucked up by a statutory reserve ratio hike that went into effect on September 01. The net overnight injections fell to 162 billion rupees from 191 billion rupees a day earlier.

On August 31, some liquidity had also gone out due to foreign exchange sales to defend a non-credible peg.

In a credible peg, such interventions will drive up rates, slow credit and protect the exchange rate.

However in a non-credible peg such as in Sri Lanka such interventions are sterilized by more liquidity injections.

A failed bill auction will also sterilize the SRR hike in the same way.
(Colombo/Sept10/2021)

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