ECONOMYNEXT – Sri Lanka has printed almost three hundred billion rupees in September 2021, giving money to meet a doubling of a statutory reserve hike amid failed bond auctions and some interventions that were sterilized, official data show as the balance of payments continue to deteriorate.
Sri Lanka cut reserve ratios in 2020 as part of exceptionally loose policy and the released liquidity was lost in record balance of payments deficit and expansions in notes in circulation and inflation.
In 2020 more liquidity was also injected through outright purchases of Treasuries into the central bank balance sheet.
In September 2021, the central bank doubled reserve money, to 4.0 percent. However by that time the due repeated liquidity injections, forex shortages and started and the credibility of a soft-peg with the US dollar had been lost.
As a result the SRR hike was printed with the acquisition of domestic assets. The central bank injected 103.5 billion rupees for 87 days on September 27.
More money was filled through failed bond auctions. The balance was filled by overnight injections.
In September 2020 some interventions to provide convertibility to printed money was also re-filled with more printed money (sterilized forex sales) to resist a contraction in reserve money.
By end September reserve money was 1,296 billion rupees up 45 percent from a year earlier, when the SRR was lower. In Sri Lanka the overnight excess liquidity, which can be used for final clearing of transactions is not considered part of reserve money.
From December 2019 to September 2021 the central bank has printed 1.467 trillion rupees, of which 363 billion has been absorbed in a reserve money expansion, including for inflation generated and over 5 billion US dollars had been lost in balance of payments deficits (fall in net international reserves).
Gross official reserves were down to 2.2 billion US dollars by October from 7.6 billion US dollars in December 2019. (Colombo/Nov08/2021)