Sri Lanka Treasuries yields flat after moving above policy rate

Ishara S. Kodikara | AFP | Getty Images Sri Lanka Prime Minister Ranil Wickremesinghe, center, speaks to supporters at the prime minister's official residence in Colombo on December 16, 2018, after he was reappointed as prime minister by Sri Lanka's president, the same man who fired him from the job nearly two months ago.

Nov 10, 2010 (LBO) – Sri Lanka’s Treasury bill yields were flat at Wednesday’s auction after yields of all maturities moved over the central bank’s policy rate of 7.25 percent a week earlier, data released by the government’s debt office showed. The 3-month yield edged up one basis point to 7.30 percent, the 6-month yield fell one basis point to 7.37 percent and the 12-month yield was flat at 7.55 percent.

The debt office, which is a unit of the Central Bank, said out of a 12.0 billion rupee stock of maturing debt, 10.4 billion rupees were sold to real buyers.

No mention was made of what happened to the rest, but Sri Lanka’s central bank has a habit of buying bills deep into the yield to engage in ‘quantity easing’ which subsequently push inflation up.

On November 03, excess reserves in Sri Lanka’s banking system rose to 129 billion rupees, generated mostly from foreign inflow purchases.

If bill yields were below the policy rate of 7.25 percent the central bank has to sterilize liquidity generated from its bill purchases at a rate below the purchase price.

Because Sri Lanka’s foreign reserves are now twice the monetary base, and its policy rates are comparatively high, the monetary authority’s sterilization costs are rising.