Sri Lanka has printed 29 billion rupees following a failed Treasury bill auction after the agency ostensibly ‘tightened’ monetary policy by raising its policy rate to 6.0 percent, official data shows.
The central bank’s Treasury bills stock went up to 1,203.44 billion rupees on August 20, the settlement day for a failed bill auction on Wednesday.
On Thursday the central bank raised its policy rate (where money is printed overnight) to 6.0 percent from 5.50 percent.
The money had been printed due to a ceiling on the Treasury bill yield of 5.38 percent, which acts as a de facto policy rate beyond overnight when real buyers are discouraged from buying government securities due to the ceiling rate.
If 12-month bills were bought at 5.38 percent it will be a de facto 12 month policy rate, if 3-month bills were bought at 5.33 percent it would be a 3-month de facto policy rate.
Analysts had urged authorities to remove the ceiling rate, which is one of the key reasons for the current foreign exchange shortage and collapse of the soft-peg of the rupee.