Lanka prints enough money to wipe out $200m BD swap
Sri Lanka has printed enough money after a failed bond auction last week to potentially wipe out foreign reserves equivalent to a $200 million central bank swap being negotiated with Bangladesh, official data show.
The central bank's Treasuries stock rose to 1,194 billion rupees on August 02, the bond settlement day up 53.9 billion rupees from 1,141 billion rupees a day earlier.
Last week the central bank offered 125 billion rupees of bonds in a price controlled bond auction and only 86 billion rupees in bids were accepted from the market, leaving around 40 billion rupees unsold not counting coupons falling due.
After the bond settlement excess liquidity in the banking system went to 53.6 billion rupees from 8.7 billion rupees a day earlier.
When the central bank eventually redeems the rupees, through an unsterilized sale of dollars, about 250 million US dollars in reserves, or the amount expected from a swap with Bangladesh Bank, will be lost.
From early 2020 to July 2021, about 4 billion US dollars in reserves had been lost due to liquidity injections made through various means.
In the 18 months to July 2020 central bank credit to government had risen by 692 billion rupees, with additional liquidity injected through two reserve ratio cuts one of which was 115 billion rupees, a profit transfer and a central bank re-financed credit scheme.
-EconomyNext (Sri Lanka)