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Wednesday July 6th, 2022

Sri Lanka Treasury bill auction failed despite forex shortages, inflation

ECONOMYNEXT – An auction for 93 billion rupees of Treasury bills failed after most bids were rejected to fix 3, 6 and 12-month yields despite severe forex shortages triggering fuel, medicine and food shortages in the worst currency crises in the history of the central bank.

The debt office offered 93 billion rupees of bills and sold only 30.7 billion rupees.

Sri Lanka offered 40 billion rupees of 3-month bills at an auction on June 22 and only 19.8 billion rupees were accepted to keep the weighted average yield at 20.73 percent, the same as last week.

The debt office offered 25 billion rupees of 6-month bills and accepted bids of only 5.7 billion rupees to fix the weighted average yield at 21.90 percent.

Another 28 billion rupees of 12-month bills were offered but only 5.1 billion rupees were sold to fix the rate at 22.04 percent.

It is not clear whether any of the unsold bills were already held by the central bank.

If not the central bank will buy the bonds and print money to repay the holders of bills which were offered for rollover, injecting liquidity and leading to the re-finance of private sector credit in banks.

In Sri Lanka, bids for Treasury auctions are approved by a committee which can decide to engage in quantitative easing without a formal announcement by the Monetary Board to the public who face high inflation and currency depreciation.

Economic analysts and classical economists have called for strict laws to curb the independence of the central bank to print money and trigger monetary instability.

Meanwhile, on June 22 an exchange rate peg for interbank transactions quoted by the central bank was hiked to 95 cents. (Colombo/June 22/2022)

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