Central Bank of Sri Lanka makes record profits from money printing, inflation and debauching its currency

April 05, 2007 (LBO) – Sri Lanka’s central bank posted a massive 27 billion rupee profit in 2006 as the economy inflated and the currency depreciated due to money printing, its latest accounts showed. It even sterilized the 2007 provisional advance to the treasury, though interest rates has since started to rise, indicating that Sri Lanka needs fiscal prudence to drive non-inflationary growth that brings benefits to the poor. The bank posted exchange gains of 22.3 billion rupees compared with losses of 12.9 billion rupees in 2005 as Sri Lanka’s rupees bowed to the dollar under the weight of money printed to bridge the budget deficit in 2006.

In the calendar year 2006, the bank printed 38.5 billion rupees to finance a weak budget with an 8.7 percent deficit, driving inflation to 19.3 percent and sending the rupee plunging down.

Print Profits

Central Bank also earned 5.3 billion rupees as interest from treasury bills through which it gave printed money to the government. At the end of the year its Treasury bill stock was 67.5 billion.

The bank’s T-bill portfolio was brought to almost zero in 2003, a year that saw tight fiscal policy from the government and complementary moneta