ECONOMYNEXT – Sri Lanka has sold 4.98 billion rupees in 2032 bonds through a post-auction window at weighted average yield of an auction held on October 12, data shows.
Sri Lanka’s central bank held overnight rates unchanged at a policy meeting after the auction.
The debt office, which is a unit of the central bank offered 100 million rupees of bonds for sale, and sold 80 billion rupees and opened a post-auction tap issue until settlement day.
The total raised from the auction went up to 84.59 billion rupees.
However, the debt office has failed to sell 15.4 percent of the auction.
In the recent past bond auctions were crippled by price controls, and unsold bonds from failed auctions were been bought by the central bank, effectively opening a policy rate at the pre-determined price controls.
However, despite the lifting of price controls auctions are failing at the cut-off rate determined at the auction.
The action injects rupee reserves into the banking system, eventually losing forex reserves and bringing the government closer to dollar sovereign default. Amid failed Treasuries actions, Sri Lanka has been having difficulties importing food and other items.
The failure of a domestic bond auction is also a type of default, which then spreads to external pressures as banks use the excess liquidity injected by a note-issue bank.
Sri Lanka’s monopoly note-issue bank had also has now run out of net forex reserves and is indebted on a net basis.
Under section 112 of the constitution of the note issue bank, it is not expected to buy bonds. (Colombo/Oct18/2021)