Sri Lanka accepts more cash through auction

Sri Lankan Police forming a human chain in parliament to protect the Speaker and enable a vote.

Sept 20, 2011 (LBO) – Sri Lanka’s central bank accepted 20 billion rupees at 7.08 percent from banks at an open market auction Tuesday as excess reserve in the island’s banks continued to decline amid forex sales to defend a dollar peg. Sri Lanka has a policy corridor of 7.0 to drain excess liquidity and 8.50 percent to inject cash in to the banking system.

On Monday the bank started open market auctions to drain liquidity from the banking system moving away from its static policy corridor.

On Tuesday the central bank offered to buy 32 billion rupees of cash and accepted 20.6 billion rupees from the auction at 7.08 percent.

The central bank has controlled the 3-month Treasury bill yeild at 7.11 percent.

The excess liquidity is now less than the bank’s own Treasuries stock which, which represents the extent of active sterilization of the balance of payments rose to 42 billion rupees Wednesday from 34.3 billion a day earlier. Total excess liquidity also fell to 31 billion rupees from 39.5 billion rupees, a day earlier.