Sri Lanka central bank in massive liquidity mop up

Oct 28, 2009 (LBO) – Sri Lanka’s central bank is engaged in a record mop up of excess liquidity in the banking sector generated foreign from dollar borrowings, surpassing a previous high in 2007. Sri Lanka raised 500 million US dollars through a sovereign bond earlier this month.

Inflows from an October 2007 sovereign bond pushed excess liquidity to 33.9 billion rupees on November 01, according to Central Bank data.

But excess liquidity in the inter-bank market has been high after a balance of payments crises ended in March with a float of the rupee and a deal with the International Monetary Fund in July raised confidence in government credit worthiness.

Foreign investors have pumped hundreds of millions of dollars into high yielding government bonds, after the rupee was re-pegged at 114.90 levels to the US dollar after the float broke an expansionary sterilized intervention cycle.

On Monday and Tuesday the Central Bank mopped up 44 billion rupees of liquidity from the inter bank money markets, by selling its own securities.

The monetary authority paid 8.47 percent to mop up 34.1 billion rupees overnight, 8.99 percent to mop up 8.5 billion rupees for 14 days and 9.03 pe