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Thursday April 18th, 2024

Sri Lanka prints Rs40bn after failed Treasury bill auction

ECONOMYNEXT – Sri Lanka has printed 39.97 billion rupees after a failed Treasury bill ‘auction’ operated under price controls, taking the central bank’s Treasury bill stock to 1,261 billion rupees on September 03 from 1,221 billion a day earlier, data shows.

The central bank conducted a 68.5 billion rupee Treasury bill auction on September 01 and failed to sell 43.24 billion rupees of the auction under a price control of 5.97 percent set for 12-month bills.

The price control serves as a de facto policy rate and the central bank prints money to buy up the bills.
After a series of failed bill auctions and outright purchases outside auctions to finance the budget and refinance private firms, the central bank has run out reserves to exchange for the new money.

On September 01 however the central bank raised a margin banks must keep with the agency, creating space to absorb the newly printed money.

The money will be effectively mopped up by the hike in the statutory reserve ratio from 2.0 percent to 4.0 percent at no cost to the central bank.

The cost will be borne by the banking system and borrowers, in the form of higher future interest rates.

After the settlement of the failed bill auction, the money printed overnight to fill the SRR liquidity shortfall and past foreign reserve losses from rupee redemptions or convertibility fell from 290 billion.7 billion rupees to 267.41 billion rupees.

The money is injected into mostly over-trading lenders who had failed to keep extra cash for the SRR hike.

In Sri Lanka state banks which finance state enterprises and the deficit are among lenders who are short of cash and have to go the window.

Cash plus banks deposited 85.69 billion rupees in the 5.50 percent window on September 03, up from 76 billion rupees a day earlier.

Sri Lanka’s foreign banks as well as one or two larger private banks are usually cash plus in most currency crises and do not contribute to central bank re-financed credit which leads to forex shortages, analysts say.


Sri Lanka central bank on track to make forex losses as net foreign assets fizzle out

The central bank was earlier printing money at around 5.20 percent for failed bill auction. Following the rate cut, the central bank will make sterilization losses on the fresh liquidity.

Any convertibility provided to the holders of the printed money will also lead to further reserve losses and foreign exchange losses, analysts had warned. The central bank’s foreign assets have declined sharply to match or reserve liabilities.

The central bank has stopped providing convertibility (dollars) for the newly printed money for most trade transaction leading to a rationing of letters of credit and a fall of the exchange rate towards 230 to the US dollar.

The money printed after the failed bill auction however will be absorbed through the SRR hike.

In an over-the-counter market among importers and exporters the rupee had fallen to around 230 to the US dollar.


Sri Lanka blames food shortages and emergency on ‘venomous’ traders after printing money

Sri Lanka has also imposed price controls triggering shortages of several foods. Political actors are blaming ‘hoarders’ for the shortages as in 1970s, when most of the Treasury bills were bought by the central bank creating forex shortages and import controls. (Colombo/Sept06/2021)

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Sri Lanka’s discussions with bondholders constructive: State finance minister

ECONOMYNEXT – Sri Lankan authorities continue to engage all debt restructuring negotiations in good faith, within principles of equitable treatment among creditors, and with maximum transparency within the norms of such negotiations, State Minister of Finance, Shehan Semasinghe has said.

“It is standard practice, when a representative group of bondholders is formed, to entertain confidential discussions with such group and its appointed advisors. In the case of Sri Lanka, the Ad Hoc Group of Bondholders represents holders controlling more than 50% of the bonds, which make them a privileged interlocutor for Sri Lanka,” Semasinghe said on X (twitter).

“It is well understood that given the price sensitive nature of the negotiations, and according to market regulations, discussions with the Group and its advisors are to be conducted under non-disclosure agreements. This evidently restricts the ability of the Government to unilaterally report about the substance of the discussions.

“The cleansing statement, which was issued on the 16th of April, at the conclusion of this first round of confidential discussions with members of the Group, aims at informing the Sri Lankan people, market participants and other stakeholders to this debt restructuring exercise, about the progress in negotiations. It provides the highest possible level of transparency within the internationally accepted practices in such circumstances.

“As informed in this statement, confidential discussions held in recent weeks with bondholders’ representatives proved constructive, building on the restructuring proposals presented by both parties. During the talks both sides successfully bridged a number of technical issues enabling important progress to be made. Sri Lanka articulated key remaining concerns that need to be addressed in a satisfactory manner.

“The next steps would entail further consultation with the IMF staff regarding assessments of the compatibility of the latest proposals with program parameters. Following these consultations, we hope to continue discussions with the bondholders with a view to reaching common ground ahead of the IMF board consideration of the second review of Sri Lanka’s EFF program.”

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Sri Lanka rupee weakens at 301.00/302.05 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 301.00/302.05 to the US dollar in the spot forex market on Tuesday, from 299.00/10 on Tuesday, dealers said. Bond yields were broadly steady.

A bond maturing on 15.12.2026 closed stable at 11.30/35 percent.

A bond maturing on 15.09.2027 closed at 11.90/12.05 percent up from 11.95/12.00 percent.

A bond maturing on 15.12.2028 closed at 12.10/20 percent down from 12.10/15 percent.

A bond maturing on 15.07.2029 closed at 12.25/40 percent.

A bond maturing on 15.03.2031 closed at 12.30/50 percent. (Colombo/Apr17/2024)

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Sri Lanka Treasury Bill yields down across maturities

ECONOMYNEXT – Sri Lanka’s Treasuries yields were down across maturities at Wednesday’s auction with the 3-month yield moving down 7 basis points to 10.03 percent, data from the state debt office showed.

The debt office sold all 30 billion rupees of 3-month bills offered.

The 6-month yield fell 5 basis points to 10.22 percent, with 25 billion rupees of bills offered and 29.98 billion rupees sold.

The 12-month yield dropped 4 basis points to 10.23 percent with 18.01 billion rupees of bills sold after offering 23 billion rupees. (Colombo/Apr17/2024)

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