Sri Lanka central bank rejects all bids at auction

Sept 30, 2008 (LBO) – Sri Lanka’s central bank rejected an entire Treasury Bill auction on Tuesday bringing back memories of dark days in June 2007 when two auctions were absorbed by the central bank, and the country was plunged into a currency crisis soon after.

The central bank was however in the market later offering bills at last week’s weighted average auction yields, dealers said.

Earlier in the day 12-month bills were quoted in the market around 19.00/25 percent.

The auction was held a day earlier because of a religious holiday on Wednesday.

Dealers say bill buyers put high bids at the auction after bond yields spiked to very high levels a day earlier and trading dried up when markets opened as dealers tried to come to terms with the new reality.

Meanwhile market participants who were summoned for a meeting at the central bank were told that the monetary authority had the “space” to absorb bills, sending chills down the spines of inflation watchers.