Thursday 31 March 2016

Sri Lanka 12-month Treasuries yield up 74pb

ECONOMYNEXT - Sri Lanka's 12-month Treasuries yield rose 74 basis points to 10.64 percent at Wednesday's auction a day after the Central Bank held policy rates unchanged, but fears of monetization remain.

The 3-month yield rose 60 basis points to 8.90 percent and the 6-month yield rose 47 basis points to 9.76 percent.

The debt office, which is a unit of the Central Bank sold 1.75 billion rupees in 3-month bills, 978 million rupees in 6-month bills and 4.35 billion rupees in 12-month bills, totally 7.0 billion rupees.

The debt office offered 21 billion rupees of bills for sale, in a week where an estimated 29 billion rupees of bills were maturing.

On Tuesday banks borrowed about 20 billion rupees in overnight printed money from the central bank to make up for liquidity shortages coming from defending a progressively weakening dollar peg.

If money is printed to repay bills, the overnight borrowing will be permanently accommodated (forex intervention fully sterilized) allowing banks to give more credit without first raising deposits to cover the liquidity short.

Sri Lanka's central bank generates balance of payments crisis by repaying Treasury bills with printed money.

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