Sri Lanka’s central bank kills liquidity in outright bill sales

July 13, 2012 (LBO) – Sri Lanka’s central bank has sold 2.1 billion rupees of Treasury bills in its portfolio to yield 10.92 percent Friday, in the second such transaction for the week, dealers said. The rupee strengthened to around 133.83/85 levels in late trading, dealers said.

Update/recast On July 11, the Central Bank had sold 1.45 billion rupees of bills with 29 days remaining to maturity to yield 10.91 percent, according to data published on its website.

On Friday the Central Bank bids to sell 5.0 billion rupees of bills with 25 days remaining to maturity.

Selling down the Central Bank’s T-bill portfolio kills liquidity generated from forex purchases and creates an ‘excess’ of dollars in forex markets in the ensuing weeks, which can lead to a rapid strengthening of the exchange rate.

In forex markets the rupee was opened around 133.70/90 to the US dollars and weakened as much as 133.95 in intra-day trading dealers said.