• Thu. Sep 22nd, 2022

Sri Lanka’s Central Bank to Cut nearly one-third of its holdings in government securities

Entering into a reverse course in money-printing, the Central Bank of Sri Lanka (CBSL) plans to cut nearly one-third of its holdings (Rs.500 billion) in government securities amidst rising inflation this year.

“The Central Bank started to tighten monetary policy since August 2021 with the country gradually recovering from the effects of COVID-19. Policy interest rates were raised to contain the gathering inflationary pressures while measures were
taken to gradually reduce the monetary stimulus provided during the pandemic. In that background, the Central Bank now expects to reduce its government securities holdings by Rs. 500 billion during this year,” CBSL Governor Ajith Nivard Cabraal said.

The book value of CBSL’s holding treasury bills and bonds stood at Rs. 1.63 trillion at end of the last week.

He reasoned that the CBSL had to maintain the government’s fiscal operations with money printing including quantity easing as the Pandemic curtailed government revnue.

“The Central Bank had no option but to provide the necessary funding for the Government (amidst government revenue losses) to ensure the smooth functioning of fiscal operations and day-to-day activities. The Central Bank also had to pump more liquidity into the banking sector to stimulate challenged companies and people,” he said.

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