Sri Lanka prints Rs100bn through open market operations
ECONOMYNEXT – Sri Lanka’s central bank has injected around 100 billion rupees against domestic assets through multiple liquidity tools by October 25 official data show, driving up excess money in the banking system to over 190 billion rupees.
The central bank injected 36.16 billion rupees through an overnight auction and 70 billion rupees for 7 days through a term auction of printed money.
By October 25, excess liquidity deposited in the central bank’s standing facility was 193.4 billion rupees, up from 138 billion rupees a month earlier.
Monetary Methamphetamine at 8.27-pct
By offering 40 billion rupees to all comers as low as 8.27 percent (just 2 pips above the floor rate) where only 36 billion rupees were bid, the monetary authority prevented overtrading market participants from borrowing at its 9.25 percent standing facility and encouraged them to trade without deposits at even lower rates.
In the run up to the election period – where there could have been a drawdown of cash – the central bank acted less imprudently and some banks went to the window and borrowed at 9.25 percent.
Since the central bank was set up in 1950, the agency has resorted to various means to print money to mis-target rates, triggering forex shortages, monetary instability, social unrest and malnutrition of children.
It then either imposed trade and exchange controls, or egged on politicians to do so, crippling economic activities and eventually driving up interest rates to very high levels, by its inconsistent policies.
In the 1970s malnutrition of children (which led to the start of the Thriposha program) came from import controls, import substitution and price controls which created blackmarkets and hit the food production base.
After 1979 and post 2022 it is coming from sheer monetary debasement (flexible exchange rate) as well as import duties on rice and maize and other foods for ‘import substitution’.
It must be said that the Fed also did the same thing from 1960 to 1980 until Paul Volcker came and ratcheted up rates (under a different framework and squeezed out inflation) ignoring the employment mandate.
The No Money Printing Lie
Sri Lanka’s macro-economists have led the public and politicians to believe that a new discretionary monetary law, which cannot be labelled a central bank constitution due its excessive discretion (flexibility), has blocked the central bank’s ability to ‘print money’.
However, through open market operations (essentially instrument independence) the central bank has unlimited powers to print money and inject liquidity into banks enabling them to trade without deposits.
Macro-economists have also persuaded ex-President Wickremesinghe to give it a 5 percent inflation target, effectively gaining goal independence from the political leadership.
Related Sri Lanka political leadership accepts 5 to 7-pct inflation without protest
That he was misled can clearly be seen in his subsequent statements about expecting the exchange rate to appreciate. In that case an external anchor was all he should have directed as the goal of the monetary authority, not a 5 percent domestic anchor, but that is another story. (Sri Lanka rupee will be taken to Rs270 to dollar: President):
It is laughable that the IMF has criticized central bank financing of primary dealers but not banks. Primary dealers get temporary money, but commercial banks addicted to central bank money through no-questions asked liquidity tools that finance investment credit through term, outright and ‘operation twist’ money give investment credit.
https://economynext.com/sri-lanka-prints-rs100bn-through-open-market-operations-184982/
ECONOMYNEXT – Sri Lanka’s central bank has injected around 100 billion rupees against domestic assets through multiple liquidity tools by October 25 official data show, driving up excess money in the banking system to over 190 billion rupees.
The central bank injected 36.16 billion rupees through an overnight auction and 70 billion rupees for 7 days through a term auction of printed money.
By October 25, excess liquidity deposited in the central bank’s standing facility was 193.4 billion rupees, up from 138 billion rupees a month earlier.
Monetary Methamphetamine at 8.27-pct
By offering 40 billion rupees to all comers as low as 8.27 percent (just 2 pips above the floor rate) where only 36 billion rupees were bid, the monetary authority prevented overtrading market participants from borrowing at its 9.25 percent standing facility and encouraged them to trade without deposits at even lower rates.
In the run up to the election period – where there could have been a drawdown of cash – the central bank acted less imprudently and some banks went to the window and borrowed at 9.25 percent.
Since the central bank was set up in 1950, the agency has resorted to various means to print money to mis-target rates, triggering forex shortages, monetary instability, social unrest and malnutrition of children.
It then either imposed trade and exchange controls, or egged on politicians to do so, crippling economic activities and eventually driving up interest rates to very high levels, by its inconsistent policies.
In the 1970s malnutrition of children (which led to the start of the Thriposha program) came from import controls, import substitution and price controls which created blackmarkets and hit the food production base.
After 1979 and post 2022 it is coming from sheer monetary debasement (flexible exchange rate) as well as import duties on rice and maize and other foods for ‘import substitution’.
It must be said that the Fed also did the same thing from 1960 to 1980 until Paul Volcker came and ratcheted up rates (under a different framework and squeezed out inflation) ignoring the employment mandate.
The No Money Printing Lie
Sri Lanka’s macro-economists have led the public and politicians to believe that a new discretionary monetary law, which cannot be labelled a central bank constitution due its excessive discretion (flexibility), has blocked the central bank’s ability to ‘print money’.
However, through open market operations (essentially instrument independence) the central bank has unlimited powers to print money and inject liquidity into banks enabling them to trade without deposits.
Macro-economists have also persuaded ex-President Wickremesinghe to give it a 5 percent inflation target, effectively gaining goal independence from the political leadership.
Related Sri Lanka political leadership accepts 5 to 7-pct inflation without protest
That he was misled can clearly be seen in his subsequent statements about expecting the exchange rate to appreciate. In that case an external anchor was all he should have directed as the goal of the monetary authority, not a 5 percent domestic anchor, but that is another story. (Sri Lanka rupee will be taken to Rs270 to dollar: President):
It is laughable that the IMF has criticized central bank financing of primary dealers but not banks. Primary dealers get temporary money, but commercial banks addicted to central bank money through no-questions asked liquidity tools that finance investment credit through term, outright and ‘operation twist’ money give investment credit.
https://economynext.com/sri-lanka-prints-rs100bn-through-open-market-operations-184982/
