Money printing up by Rs. 11 Billion Economy suffers double blow

Central Bank of Sri Lanka

The economy suffered a double blow on Friday (11 August), reflected by the Central Bank printing Rs 11 billion to help the Government to meet its obligations in the absence of adequate revenue, while the country’s foreign reserves became poorer by US$ 107 million to help meet foreign debt servicing commitments.

The CB printed Rs 11,038 million thereby increasing its money printing (MP) stock by 9.23 per cent to Rs 130,588.43 million by the weekend, while US$ 106.75 million (Rs 16,352 million) was drawn down from the CB’s foreign reserves to service the government’s foreign debt servicing commitments, an interpretation of the CB’s open market operations (OMO) press releases stated.

MP may cause inflationary pressure. The foreign exchange (FX) market is avoided to meet foreign debt servicing commitments for fear that it would cause depreciative pressure on the rupee.

Conversions are based on the middle rate of the benchmark ‘spot’ as at Wednesday (9 August) which sources said was Rs 153.175 to the US dollar. ‘Spot’ trades are settled after two market days from the date of trading. CB deals in ‘spot.’ As a result, due to net inflows into the FX market on Friday, the benchmark ‘spot’ marginally strengthened to close the weekend at Rs 153.08/12 to the US dollar in two way quotes, over Thursday’s close of Rs 153.10/25 to the dollar despite CBSL buying to strengthen the country’s foreign reserves over moderate volumes.

Meanwhile, due to a mix of MP and net outflows from the money market (MM) on account of foreign debt servicing commitments, net excess liquidity declined by Rs 5,314 million (16.92 per cent) to Rs 26,087 million by Friday. However, due to falling rates, Government’s MP borrowing costs, Friday over Thursday, declined by Rs 126.58 million (5.21 per cent) to Rs 2,300.96 million by the weekend.

(Source: Ceylon Today – By Paneetha Ameresekere)