Sri Lanka’s central bank profits double to Rs48bn
ECONOMYNEXT – Sri Lanka’s central bank posted profits of 48.3 billion rupees in the year to December 2017, up 118 percent from a year earlier, amid high inflation and currency depreciation, despite mopping up printed money in the second half of the year.
The central bank made 22.9 billion rupees in interest income from reserve assets, up from 14.8 billion rupee a year earlier, as it built up foreign reserves and sold down domestic assets (Treasury bills) purchased to print money and generate a balance of payments crisis.
There were also 24 billion rupees in unrealized gains, up from 9.7 billion US dollars a year earlier. Unrealized gains on gold were 13.9 billion rupees, up from 8.3 billion rupees a year earlier.
Interest income from government securities was still high at 17.9 billion rupees, though down from 20.33 billion rupees a year earlier. The central bank rapidly sold down its Treasury bill stock in the last quarter of 2017.
A central bank can make large rupee profits from inflation, involving both currency depreciation (gains on foreign assets and gold) and interest income from Treasury bills bought to print money.
High central bank profits show immense harm caused to little people in a country.
However a pegged central bank can also make profits without harming the people with interest income from foreign assets (reserves invested in the US or elsewhere).
In times of low inflation or currency appreciation a pegged central bank can make also make losses, particularly if it sterilizes or mops up large volumes of cash to build foreign reserves much larger than the monetary base of the country.
Sri Lanka’s central bank last year also printed 116.5 billion rupees for the Treasury through a provisional advance on which no interest is earned.
In 2018, if inflation is low, the central bank will make sharply lower interest on domestic assets and make even make sterilization losses, unless money is printed to generate balance of payments troubles.
Profits can also come from currency depreciation if an inflationist-devaluationist agenda to give subsidies to shareholders of export firms at the rest of society is pursued analyst say. (Colombo/Apr30/2018)