ECONOMYNEXT – Sri Lanka central bank’s own Treasuries holding has topped 2.0 trillion rupees with 48 billion rupees in permanent money injected after the latest Treasury bill auction, official data shows.
The central bank’s Treasury bill and bond stock reached 2,045 billion rupees on June 17 from 1,997 billion rupees a day earlier.
The central bank had additionally injected 746 billion rupees against Treasury securities overnight into money markets allowing banks to give loans without raising deposits and trigger balance of payments deficits and forex shortages.
The overnight bill stock fell to 694 billion rupees as the permanent money was injected.
Some banks, including state banks are short of liquidity having financed credit to the government or state enterprises funded by central bank credit or window borrowings.
The central bank has bought 71 billion rupees of bills outright so far in June.
The central bank started the current currency crisis around August 2019 injecting money by buying back bonds from banks for new money, losing the ability to run balance of payments surpluses (sterilize inflows).
Currency crises are problem associated with intermediate regime central banks (non-credible pegs) which intervenes in forex markets to collect reserves and also prints money to mis-target interest rates.
The central bank is continuing to intervene in forex market using mostly borrowed dollars from India and is also putting downward pressure on a peg down with a surrender rule.
A non-credible peg called a ‘guidance rate’ has been imposed. (Colombo/June21/2022)
