Sri Lanka rejects all bids at Treasures auction

Nov 03, 2011 (LBO) – Sri Lanka’s state debt office rejected all bids at a Treasuries auction Wednesday after rates rose for several weeks running. Outright rejections of bids have in the past coincided with tight liquidity coming from defence of a dollar peg.

LBO’s economics columnist fuss-budget recently warned the market to expect entire auction rejections.

“In the past, the market has seen outright rejections of entire Treasuries auctions, when balance of payments pressures reached crisis territory,” fuss-budget said in a column published on September 2011.

The Central Bank’s Treasury bill stock, which is a proxy for reserve losses rose to 83 billion rupees this week.

In October domestic asset increases in the Central Bank’s balance sheet was lower than in September.

Meanwhile banks have raised interest rates to raise more deposits which can reduce consumption and increase savings to finance credit.

The state has also raised fuel prices, which can also cut consumption, and reduce demand for credit to fund energy utility losses, against helping maintain the dollar peg.

Dealers however say peg defence is continuing.