Sri Lanka central bank to drain foreign cash with own securities

Mar 13, 2008 (LBO) – Sri Lanka’s Central Bank said it would issue its own securities to drain excess cash generated from foreign exchange interventions after running out of Treasury Bills which are usually sold to drain liquidity. The Central Bank said its Treasury Bill stock has fallen to half a billion rupees by March 12, from 43.5 billion rupees as it sold down its stock to absorb excess liquidity in the banking system generated by buying 360.6 million dollars so far this year.

The monetary authority has intervened in the foreign exchange market to maintain a peg with the US dollar at around 107.80 amid tight monetary policy.

“If this trend were to continue, the Central Bank is prepared to continue the absorption of liquidity by issuing its own securities under its open market operations,” the Central Bank said in a statement Thursday.

“In the circumstances, the Central Bank will issue the first tranche of its securities on 13th March 2008.”

“The Central Bank securities are negotiable and marketable instruments and will be issued in scripless form.”

The central bank said it will continue to mop up the excess liquidity in the financial system using Central Bank Securities as and when Treasury bills are not available, to curb aggregate demand and bring down the future inflation to acceptable levels.

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