Sri Lanka’s Reserve Money growth meets the projections - Lanka News Web (LNW)

Sri Lanka’s Reserve Money growth meets the projections

Central Bank (CB) says Sri Lanka’s Reserve Money growth is well within the projections this year and it has not printed a large amount of to finance the government’s fiscal commitments.


Issuing a media release clarifying certain news reports relating recent excess money printing claims, the Central Bank revealed that Reserve Money, which was at Rs. 939.8 billion at end 2017 and at Rs. 1,010.5 billion at end September 2018, was recorded at Rs. 1,020.8 billion on 2 November 2018.

This is a year-on-year growth in Reserve Money of 11.6 per cent, which is well within the Central Banks’ projections for the year 2018.

Money printing authorities should print money only to match the value of overall transactions in the economy. When economic and business activities grow in a country, there should be an increase in total money supply as well to facilitate such transactions.

Therefore, after estimating expected economic growth of a country (in nominal terms) in a given year, the monetary authority is responsible for adding new money to the economy only to the extent to meet that amount of growing transactions.

Meanwhile, rupee liquidity in the domestic money market has been in deficit since mid September 2018, requiring the CB to conduct open market operations (OMOs) to provide adequate liquidity to the market, in addition to allowing market participants access to standing facilities at policy interest rates.

In view of the large and long term shortages of liquidity in the market, the CBSL conducted longer term reverse repurchase auctions and made outright purchases of Government securities mainly from the secondary market.

These are regular monetary operations with market participants, which have no relevance to the government’s fiscal position or any particular political event, CB claimed.

As a result of such OMOs, the net book value of the Treasury bill holdings of the CBSL (gross book value of Treasury bills plus total value of reverse repos and standing lending facilities minus repos with the CBSL) was recorded at Rs. 224.4 billion on 2 November 2018.

However, on a gross basis, the CBSL holdings of government securities were Rs. 67.4 billion on 2 November 2018.

The fact that the growth in Reserve Money has remained subdued shows that recent OMOs have not had an undue expansionary effect on money supply in the economy.

 

Latest News

Connect with Us

fb twitter youtube g ins in

Outbound wb

Most viewed in Last week

Will return if invited – Wijedasa informs Malik

November 14, 2018

Former Minister Wijedasa Rajapaksa has reportedly informed Malik Samarawickrama that...

If there’s majority, name someone except Ranil!

November 14, 2018

One of the representatives of the Presidential Secretariat told ‘Lanka...

Attempt to end Parliamentary session and seek referendum!

November 14, 2018

Internal sources from President’s Office inform that the Parliament is...

Red light from India

November 18, 2018

A discussion had been held between former Sri Lankan President...