The ratio of money printing to excess liquidity passed the 300% barrier yesterday to 312.94%, as the Central Bank (CB) continued to meet the Government's foreign debt servicing commitments from its foreign reserves at yesterday's trading, CB's 'Open Market Operations' data showed.
An increase in the money printing ratio also translates to the fact that there is a dearth of inflows in to the foreign exchange (FX) market.
As a result, the country's foreign reserves were poorer by US$ 110.40 million and market's excess liquidity by Rs 15,483.23 million. (24.21%). CB doesn't give a day by day commentary of its gross reserves position. Therefore, a dissipation of $ 110.40 million from its reserves as a percentage of its total reserves as at Wednesday cannot be ascertained.
On Wednesday, money printing, as a ratio to excess liquidity was 237.28%, much lower over yesterday's 312.94% ratio. Money printing causes demand side inflationary pressure on the economy, which hurts the poor and the fixed wage earner the hardest.
On the other hand, CB meeting the government's foreign debt servicing commitments from its reserves and not from the FX market, mitigates depreciative pressure on the rupee. Yesterday's excess liquidity figure was Rs 48,500 million and money printing, Rs 151,776.21 million. Money printing is reflected in CB's book value Treasury Bill holdings. In this instance, that translates to CB's lending to the government.
As a result of the tight liquidity situation, the weighted average rate of overnight market repo transactions rose by eight basis points to 6.45%, though that of call money remained mute at 6.35%.
Courtesy: Ceylon Financial Times 18 September 2015