March 11, 2007 (LBO) – Sri Lanka’s inter-bank call rates hit 50 percent Wednesday even as the monetary authority pumped billion of rupees into the banking system to make-up for a seasonal cash draw down from the system. Sri Lanka’s money supply usually zooms in April during the island’s Sinhala and Tamil New Year as government servants and private sector workers are given ‘festival advances’ to celebrate the festival.
Some critics have claimed that the island’s cash-strapped government usually funds its salary advances with treasury bills sold to the central bank, resulting in a jump in inflation in May.
However, the monetary authority has to keep pump sufficient cash to keep the national financial system running.
Last week reserve money rose to 266.6 billion rupees with the festival cash demand with most of the money coming from dollar purchases of the central bank.
The central bank had a end-March target of 254 billion rupees.
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Analysts say in the past, April has seen dollar inflows as the country’s export sector converts dollars to pay their staff.
On Tuesday, the rupee fell to around 109.40 to the dollar, after peaking at 109.60 with a dividend payment of a foreign controlled telecom firm believed to be driving demand.
On Wednesday, the rupee traded around 109.20/30 to the dollar, dealers said.
In the treasuries market one-year t-bills were offered at 15.0 percent, despite the auction rate coming down to 14.07 percent yesterday, taking many market participants by surprise.
Colombo shares opened opened higher with the the all share up 10 points in the first hour, amid wafer thin trading of 14 million rupees.