July 30, 2012 (LBO) – Sri Lanka’s Central Bank has called bids to sell up to 15.5 billion rupees of Treasuries in its holdings to the public to drain liquidity that came from the proceeds of a sovereign bond sale. On Monday an auction was called to sell 7.5 billion rupees of 3 week bills and 8 billion rupees of 4 week bills.
Selling bills outright and mopping out cash will squeeze the rupee reserves in the banking available for credit, resulting in a build up foreign reserves and ‘surplus of dollars’ in forex markets.
Such a ‘sterilized foreign exchange purchase’ allows the exchange rate to strengthen.
Separately a repo auction was also called to mop up cash overnight.
The spot US dollars was quoted around 131.20/40 to the US dollar Monday.
There was some uncertainty in forex markets after market participants realized that nearly 500 million US dollars expected from the sale of a sovereign bond had by passed forex markets and had been exchanged for rupee liquidity from the monetary authority.