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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Liquidity rates rise

Liquidity rates rise

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1Liquidity rates rise Empty Liquidity rates rise Wed Jul 08, 2015 9:12 am

Melissa Pereira


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Ceylon Finance Today: Market's excess liquidity was uplifted to Rs 998.31 million at yesterday's trading due to the possible receipt of net inflows totalling US$ 7.47 million at Friday's trading.


Settlement of inflows took place after two days market trading. Conversions are made, based on the spot price, which since Thursday has been at
Rs 133.60 to the US dollar in interbank trading.


Another way that excess liquidity may be uplifted is due to the leverage given by Central Bank (CB) for banks to play around with their statutory reserves ratio requirement, up to a maximum of 10% of that requirement, until the days of reckoning which is by the middle and by the end of every month.
Nevertheless, the tight liquidity situation in the market was revealed where the weighted average rates of call money and overnight market repo transactions increased by three and five basis points each to 6.15% and 5.94% respectively at yesterday's trading.


In related developments, money printing continued to dominate market's excess liquidity, contributing to 73.45% of market's excess liquidity as at yesterday. Money printing is reflected by CB's lending to the government, translated by the latter's Treasury Bill holdings, which, as at yesterday was Rs 50.36 billion, while market's excess liquidity was only slightly ahead at
Rs 68.56 billion.


Money printing is a substitute to inflows, due to the latter running dry because of the unstable political situation in the country. The flip side of money printing is that it causes demand side inflationary pressure on the economy, hitting the poor and the fixed wage earner the hardest.

Courtesy: Ceylon Financial Today 8 July 2015

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