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Ceylon Finance Today:Money market's excess liquidity declined by a massive Rs 3.6 billion or by 4.34% to Rs 67.6 billion at yesterday's trading due to Central Bank's (CB's) defence of the rupee, data showed. When liquidity is drawn down from the money market, that drained out liquidity is paid to the CB to buy the necessary US Dollars from CB's foreign reserves to meet the market's requirement of dollars. Currently CB is defending the exchange rate (ER) at Rs 133.60 to the US dollar in interbank spot trading.
Due to a dearth of inflows because of the current, unstable political situation in the country, money printing increased to comprise 74.54% of market's excess liquidity yesterday, compared to the previous day's figure of 71.29%. Money printing, though it meets the government's borrowing requirements, nevertheless causes demand side inflationary pressure on the economy, hitting the poor and the fixed wage earner the hardest.
Money printing is reflected by CB's Treasury Bill holdings, which increased to Rs 50.35 billion from the previous day's figure of Rs 50.32 billion yesterday. Meanwhile, the weighted average rate (WAR) of call money marginally declined by one basis point (bp) to 6.12%, while the WAR of overnight market repo transactions decreased by six bps to 5.89% yesterday.
Courtesy: Ceylon Financial Times 7 July 2015
