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Sri Lanka Treasury bill yields falls below the floor policy rate

ECONOMYNEXT – Sri Lanka’s 06 and 12 month Treasury bill yield fell below the floor policy rate of 4.5 per cent at Wednesday’s Treasury auction, data from the state debt office showed, amid a spike in liquidity.

The debt office which is a unit of the central bank offered 40 billion rupees of bills and sold 40 billion, with more than the offer in 12-month bills being sold.

The debt office said it sold 14.6 billion rupees in 6-month bills at an average yield of 3.87 per cent down from 4.71 per cent a week earlier.

Another 25.3 billion rupees of 12 – month bills were sold at an average yield of 4.13 per cent, down from 4.99 per cent last week.

However, it is not clear why bids are submitted far below the 4.5 per cent policy rate.

There have been occasions where bids have been made at low rates in the expectation of a rate cut, dealers said.

On October 20 excess liquidity in the banking system jumped from 175 billion rupees to 210 billion rupees, and the central bank’s Treasury bill stock jumped to 501 billion rupees from 457 billion rupees.

Sri Lanka has been monetizing unprecedented volumes of debt after tax cuts in December 2019, which triggered forex shortages until private credit turned negative. (Colombo/Oct22/2020-sb)

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