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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Money printing 205% of liquidity

Money printing 205% of liquidity

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1Money printing 205% of liquidity Empty Money printing 205% of liquidity Wed Sep 09, 2015 7:01 pm

Melissa Pereira


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics

Rs 1,345.16 million worth of excess liquidity was lost from the market on a net basis yesterday, probably due to government's foreign debt servicing commitments.
Central Bank (CB) deals in 'spot.' With the spot rate closing at Rs 137.50/138.00 to the US dollar in interbank two way quotes on Friday, this would mean a capital flight of US$ 9.77 million from CB's foreign reserves yesterday.



Market's excess liquidity yesterday was Rs 60,472 million and CB's book value Treasury (T) Bill holdings: Rs 123,879.25 million. Therefore, yesterday, money printing, reflected by CB's T Bill holdings or its lending to the government, was, as a ratio, 204.85% of excess liquidity.



Nevertheless, money printing causes demand side inflationary pressure which hits the poor and the fixed wage earner the hardest.



In related developments, the weighted average rates of call money and overnight market repo transactions declined by one and 14 basis points each to 6.34% and 6.30% at yesterday's trading. Meanwhile, CB, 'on behalf of the government,' had a reverse repo auction for Rs 10,000 million yesterday. Nevertheless, bids received were rejected, market sources told Ceylon FT. CB generally rejects such bids when the market asks for higher rates over and above that which the CB/government is prepared to pay.
Courtesy: Ceylon Financial Times 9 September 2015

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