Liquidity

Aug 01, 2013 (LBO) – Sri Lanka’s central bank has bought Treasury Bills to meet government cash flow needs but is draining the liquidity though open market operations to counter any inflationary impact, Governor Nivard Cabraal said. Governor Cabraal has said earlier that Sri Lanka has enough foreign reserves to pay investors if they wanted to exit.

“We have built up the space by retiring Treasury Bills over the past several months to meet situations of this nature,” he said.

“It won’t have inflationary implications because we are replacing one debt with another,”

“We will be draining the liquidity.”

The Central Bank called bids for a 20 billion rupees overnight repo auction and 20 billion rupee one week term auction Thursday to drain liquidity generated from the expansion in central bank credit.

Cabraal said the central bank met cash flow needs of the government to repay debt and the money will not be spent in the domestic economy.

A large bond tranche matured this week, some of which were held by foreign investors.

Some foreign bond holders have been shortening the tenor of their investments and moving to Treasury Bills over the past few months as US interest rates rose.

This week