Sri Lanka treasury auctions resume

July 12, 2007 (LBO) – Sri Lanka has accepted a small amount of bids from this week’s treasury bills after rejecting bids outright for two weeks in a row, data released by the public debt office showed. The government accepted 1.1 billion out of an auction of 11.3 billion rupees of maturing treasury bills. The bills, all in 3-month maturity were accepted to at 17.40 percent, the benchmark rate established at the last auction.

Six month bills were last sold at 17.12 percent and 12-month bills 16.89 percent.

The Central Bank’s public debt department which conducts auctions on behalf of the government said the balance 10.1 billion rupees worth of bills was retired.

Sri Lanka’s inflation has been falling over the year with the Central Bank pursuing tight monetary policy, indicating that the negative real interest rate structure is being corrected, but weak fiscal policy is driving demand for savings keeping rates high.

Meanwhile in the past two months inflation has picked up 6 percent, raising concerns that demand pressure is resuming in the economy.

The central bank has also been a net seller in interbank the foreign exchange market in May and June which analysts say could be a further sign of demand pressure. .