Sri Lanka sells Rs40bn in bills in first auction, CB bill stock Rs738bn

ECONOMYNEXT – Sri Lanka sold 40 billion rupees of Treasury bills at pre-determined yields at an ‘auction’ with central bank already holding a historic volume of 738 billion rupees in its balance sheet, official data show, amid a steady fall in foreign reserves at current interest rates.

The debt office offered 10 billion rupees of bills and sold 10 billion rupees at 4.71 percent, from 4.69 percent a week earlier.

Five billion rupees of 6-month bills were offered at 5.0 billion were sold at 4.80 percent, unchanged from a week earlier.

Twenty five billion rupees of 12-month bills were sold at 5.05 percent, unchanged.

The debt office offered a total of 40 billion rupees and 40 billion were sold. It is not clear whether any of the bills were already held by the central bank.

The central bank’s Treasury bill portfolio hit 738 billion rupees last week, with 244 billion rupees of excess liquidity remaining.

Injections of liquidity, when used by the credit system, drive imports, pressuring a peg with the US dollars and deprive dollars to repay debt. To keep the peg foreign reserves have to be sold to mop up the excess rupees that come up for ‘redemption’ against the peg.

The peg is loosely enforced through a weak side convertibility undertaking called a ‘disorderly market conditions’ (DMC) rule in neo-mercantilist parlance, according to critics, which tend to panic market participants due its lack of transparency.

Over two billion US dollars in forex reserves (forex assets) had been lost in 2020 due to low interest rates and liquidity injections (from an expansion of domestic assets). (Colombo/Jan07/2020)

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