Sri Lanka central bank to issue own securities to mop up inflows

Sept 30, 2009 (LBO) – Sri Lanka’s central bank will soon issue its own securities to mop rupee liquidity generated from purchasing foreign exchange, because the monetary authority is about to run out of its Treasury Bills portfolio, Governor Nivard Cabraal said. On Monday the monetary authority’s net Treasury bills position fell to 2.7 billion rupees after 18.0 billion rupees of excess liquidity in the inter bank market was mopped up overnight.

“Whenever the need arises we are prepared to issue Central Bank securities,” Governor Cabraal said.

The Central Bank’s portfolio of bills headed down rapidly from an April peak as confidence was restored in the US dollar peg after a float re-set the peg.

After an International Monetary Fund deal in July inflows into government securities markets increased rapidly. Foreign investors have bought around 1.2 billion US dollars of government securities so far.

“We are trying to gently take in Treasury Bonds for the future,” Cabraal said. “It is a cost to us also.”

The interest cost of its own securities has to be borne by the Central Bank, putting burden on its balance sheet.

Analysts say with strong inflows, even outside of purchases of Treasuries by foreigners, Sri Lanka may issue its first CB securities next month.

Sri Lanka last issued CB securities just before a balance of payments crisis started in September 2008 when foreign reserves peaked and it had sold down all its T-bills amid tight monetary policy.

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