Sri Lanka seeks to extend RBI swap deal

ECONOMYENXT – Sri Lanka has requested India to extend a central bank swap deal which is expiring in March 2015, Finance Minister Ravi Karunanayake told parliament.

He a part of the swap had already been paid back and the second tranche is to be paid back in March 2015.

Sri Lanka has requested India to extend the deal for another year, he said.

Sri Lanka had already re-paid back a 400 million dollar tranche and a second 1.1 billion 6-month dollar swap is expiring on March 2016.

Sri Lanka has faced balance of payments trouble as the central bank printed large volume of money to manipulate interest rates down despite strong private and state credit.

The central bank credit (printed money) has boosted credit has allowed banks to give loans above the deposits they raised, generating excess domestic demand and imports.

In Sri Lanka the Central Bank can buy Treasury bills for three months of more with printed money outside ordinary overnight domestic operations – which is a deadly ‘quantity easing’ exercise – without formal announcement or process unlike in the US.

As part of future central bank reforms analysts say the ability to engage in such exercises should be restrained through law. (Colombo/Dec17/2015)

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