The publication titled ‘Edmund’s Newspaper Revolution,’ a compilation of Mr. Edmund Ranasinghe’s seven decades of dedicated media work, was launched during this event
President Ranil Wickremesinghe emphasized that all media outlets, including social media, should engage in a discussion regarding whether to enter into international agreements or adhere to the country’s legal framework. He made these remarks during his attendance at the ceremony, held at the Presidential Secretariat yesterday (03), in honour of a distinguished figure in Sri Lankan journalism, Edmund Ranasinghe, the founding Editor and Editorial Director of the ‘Diwaina, newspaper.
This event marked the inauguration of a program initiated by President Ranil Wickremesinghe to pay tribute to senior journalists who have made significant contributions to the field of journalism in the country.
During the ceremony, the book ‘Edmund’s Newspaper Revolution,’ a compilation recognizing Mr. Ranasinghe’s seven decades of media dedication at the age of 93, was also unveiled. This book was authored by Presidential Senior Adviser Prof. Sunanda Madduma Bandara and edited by Presidential Media Director Mr. W. M. K. Wijebandara and Deputy Media Director Deepti Adhikari.
President Ranil Wickremesinghe lauded veteran journalist Edmund Ranasinghe as a trailblazer who catalysed transformative changes in Sri Lankan journalism. He also highlighted that Mr. Edmund Ranasinghe’s contributions to media, spanning seven decades, played a pivotal role in advancing Sri Lankan society, economy and politics. Furthermore, President Wickremesinghe underscored the importance of exploring how artificial intelligence can enhance the field of media art to create more effective media outlets.
Addressing the event, President Ranil Wickremesinghe said;
In 1977, when I initially ran for election in the Biyagama Constituency, I sought out a skilled journalist to write an article for me. My father promptly recommended Edmund Ranasinghe, who subsequently penned my first political article. I held onto it until last year, but regrettably, I no longer possess it.
During my father’s tenure as the Chairman of Lake House, Mr. Edmund Ranasinghe served admirably as the Editor of newspapers such as Silumina and Dinamina. Piyasena Nishanka and M.A. Silva, along with Martin Wickramasinghe, received recognition from senior journalists and writers. Consequently, Mr. Ranasinghe possesses substantial experience in both the media landscape that existed before independence and the one that emerged thereafter.
In 1953, when rice prices surged, Mr. Dudley Senanayake was compelled to resign as Prime Minister. Sixty-nine years later, Gotabaya Rajapaksa faced a similar predicament over fuel shortages. Throughout these 69 years, Mr. Ranasinghe has amassed a wealth of experience, making him capable of writing a comprehensive book on the subject.
Mr. Ranasinghe played a pivotal role in the press struggle of 1964 and his experiences undeniably left an indelible mark on the media culture of our nation. However, the landscape of print media is undergoing significant changes. Journalism, once reliant on lead type, has evolved to include tools like the iPad. The capacity to swiftly access knowledge, even within a venerable institution like the Lake House Institute, has been realized through technological advancements. Consequently, technology has become an invaluable tool for advancing the field of journalism.
Nevertheless, media in any country must operate within the framework of its own laws. The advent of social media has led to a situation where some entities publish content according to their own whims, circumventing established regulations. This raises a crucial question: should there be a dialogue regarding whether all media, including social media, should adhere to international agreements or abide by their respective national laws? Often, many concur with European legislation. Currently, newspapers and journals worldwide are either changing ownership or considering transferring to investors. The future of media art will undoubtedly unfold in the coming two or three years and expertise in this domain may emerge not just from New York but also from Sri Lanka.
Mr. Upali Tennakoon, the former Editor-In-Chief of the Island and Rivira newspapers residing in the United States, delivered the keynote address at the tribute ceremony.
“I am honoured to have been invited to deliver the keynote speech at the tribute ceremony honouring Mr. Edmund Ranasinghe’s remarkable seven-decade career in the media industry.
Mr. Ranasinghe was never one to seek accolades; he always considered his work a service. Consequently, he held the belief that awards were of little significance. However, in accordance with President Ranil Wickremesinghe’s vision, this tribute holds great significance. Edmund Ranasinghe stands as the most experienced journalist in the realm of journalism.
Beginning his media journey as a journalist at the Lake House Institute’s ‘Daily News’ newspaper in 1952, Mr. Edmund Ranasinghe resigned from his post in 1973 in protest against the government’s takeover of the Lake House Institute, where he held the position of Deputy Editor.
In 1977, he was once again appointed as the Editor of ‘Dinamina’ by the same Lake House Institute, later assuming the role of Editor at Silumina as well. In 1981, as the inaugural Editor of the ‘Divaina’ newspaper, Mr. Ranasinghe swiftly steered journalism in this country towards new horizons, elevating it to unprecedented levels of popularity. At the age of 86 in 2016, he returned as the Editor of ‘Silumina,’ showcasing his unwavering commitment to the field.
Mr. Ranasinghe’s approach aimed not to overwhelm readers with empty pages but rather to cultivate an intelligent readership. His career had two primary objectives: expanding readers’ knowledge and nurturing an intelligent readership. His media philosophy continues to be practiced in America to this day.
The phrase “Make Your Child a Classroom Hero” from the Wall Street Journal, used as a subscription pitch, was introduced to Sri Lankan journalism by Edmund Ranasinghe three decades ago. It’s worth noting that many of the prominent figures in today’s media industry were mentored under his influence.”
The event was compered by the Chairman of the Sri Lanka Foundation Institute Senior Journalist Saman Athaudahetti.
The event saw the presence of notable figures, including Prime Minister Dinesh Gunawardena, Minister of Mass Media Dr. Bandula Gunawardena, State Minister of Mass Media Shanta Bandara, Member of Parliament, Attorney Premanath C. Dolowatta, President’s Senior Adviser on National Security and Chief of Presidential Staff Sagala Ratnayaka, President’s Senior Adviser on Climate Change Ruwan Wijewardena, President’s Secretary Saman Ekanayake, Secretary of the Ministry of Mass Media Anusha Palpita, Government Information Director General Dinith Chinthaka Karunaratne, and distinguished senior journalists, along with a multitude of journalists who gathered to commemorate this occasion.
Prasanna Ranaweera, the Minister of State for Small and Medium Enterprise Development, expressed the government’s objective to increase the percentage of entrepreneurs, which currently stands at only 2% of the country’s population, to 10% within the next five years.
Additionally, he emphasized that young individuals who have completed their general education and are currently working as trishaw drivers will receive vocational training, creating opportunities for higher-level employment.
These statements were made by Mr. Prasanna Ranaweera, the Minister of State for Small and Medium Enterprises Development, during his participation in a press conference held at the Presidential Media Centre yesterday (03), focusing on the theme of Collective Path to a Stable Country.’
Expressing his views further State Minister Prasanna Ranaweera said;
President Ranil Wickremesinghe has entrusted me with the significant responsibility of fostering entrepreneurship in our nation. Our efforts are directed towards nurturing entrepreneurs while safeguarding our traditional industrialists.
Every year, a substantial number of young graduates emerge from our country’s universities. However, the prospects of transforming them into entrepreneurs remain relatively low. If a majority of them are given the opportunity to become entrepreneurs, it would greatly bolster our country’s capabilities. Consequently, their contributions should be harnessed to fortify the nation’s development process.
In the context of sustainable development, there is a growing global demand for environmentally friendly products, reflecting a worldwide trend towards eco-conscious goods. Bangladesh has already instituted a ban on plastic products. Given this scenario, it is imperative for us to manufacture alternatives to plastic products to engage with the global market. In addition to these substitutes, we should also focus on export-oriented products. The production of such goods in line with global market demand will enhance our country’s foreign exchange earnings. Under this ministry, we oversee institutes such as the National Design Centre, National Crafts Council, and Laksala. These entities enable us to develop innovative designs that cater to both the modern world and our nation’s unique cultural heritage.
There are villages that produce distinctive designs that are representative of our country. By providing them with proper training and technology, we have the opportunity to transform these communities into new entrepreneurs. Our government is committed to working towards this goal. Conquering the global market requires more than just one product. In the face of fierce competition, it is essential to create new products. We must break free from a dependency mind-set and transition into a self-reliant nation. Building a manufacturing economy is the path we are pursuing through our ministry, aligning with the government’s vision.
To succeed in the international market, it is imperative to revise certain laws within our country, particularly those related to specific sectors, including those governed by various ministries such as the Ministry of Environment. These changes are essential to facilitate the emergence of new entrepreneurs by ensuring unimpeded access to the raw materials required for manufacturing.
Moreover, a significant portion of our nation’s youth is engaged in driving trishaws as their primary source of employment. To alleviate the economic challenges they face, it is crucial to create secondary employment opportunities. To achieve this goal, we should offer professional training programs such as plumbing repair and electrician training.
Furthermore, it is essential to provide these individuals with access to credit facilities and facilitate their transition into the entrepreneurial sphere. Currently, entrepreneurs make up just 2% of our population, a figure that we aspire to elevate to 10% within the next five years.
By achieving this target, we can harness their support in advancing the government’s development objectives. Our nation boasts a pool of talented human resources and it is imperative to leverage their contributions to enhance domestic production and fortify the economy.
The Disaster Management Center (DMC) has announced the organization of a Regional Tsunami Simulation Exercise, scheduled for Wednesday (October 4th). This exercise will involve the participation of 28 countries from the Indian Ocean region.
The primary objective of this simulation exercise is to enhance the preparedness and capacity of regional nations to respond effectively to a tsunami disaster. The exercise is set to take place in the districts of Trincomalee, Galle, and Matara from 9:30 AM to 11:30 AM.
The event is being organized by the Indian Ocean Tsunami Warning and Mitigation System in collaboration with UNESCO. It aims to assess and improve the readiness and coordination of countries in the Indian Ocean region to deal with a potential tsunami threat.
The DMC has also urged the public to avoid spreading fear or misinformation about tsunami risks during this exercise, emphasizing that it is a simulation aimed at enhancing disaster response capabilities.
Former Central Bank of Sri Lanka (CBSL) Governor Ajith Nivard Cabraal and Lalith Weeratunga have been acquitted of charges in a case filed by Ven. Thiniyawala Palitha Thero. The Thero had alleged that Cabraal and Weeratunga provided public funds to a US national.
The court has quashed the case, effectively clearing Cabraal and Weeratunga of the charges brought against them. This legal development marks a significant outcome for the individuals involved in the case.
Sri Lankan cricketer Danushka Gunathilaka, who was recently acquitted of a sexual assault case in Australia, has announced his intention to file a civil case against the Australian State. Gunathilaka arrived in Sri Lanka after spending 11 months facing trial in Sydney.
According to Gunathilaka, Australian law prevents him from seeking compensation from the woman who accused him, but he can pursue a civil case against the Australian State to recover his legal fees incurred during the trial.
Gunathilaka expressed regret over missing out on participating in the Asia Cup and World Cup during his legal ordeal. Nevertheless, he remains determined to continue his cricket career and plans to return to training soon.
The cricketer’s decision to file a civil case against the Australian State is a legal strategy to address the financial burden he faced as a result of the trial and to seek compensation for the expenses incurred.
Colombo (LNW): Sri Lanka’s tourism industry is witnessing an encouraging resurgence in the first nine months of 2023, with the number of tourist arrivals showing a marked increase in comparison to the previous year, according to the Sri Lanka Tourism Development Authority (SLTDA).
Tourism earnings in the first eight months of 2023 were over US$ 1.3 billion, reflecting a 56.7% increase from the corresponding period of last year, whilst August earnings stood at $ 210.5 million, as per latest Central Bank data.
June alone accounted for 84,003 of these arrivals. An interesting insight from SLTDA’s data revealed that the majority of tourists in June were Indian nationals, with their count standing at 22,388. This influx from the neighboring country underscores the strong cultural and historical ties shared by India and Sri Lanka.
Sri Lanka has attracted 111,938 tourists in September, missing the monthly target of 120,201 and marking lowest figure since June though the country saw cumulative performance crossing the important 1 million mark for the first time in three years.
Over the first nine months of the year, arrivals reached 1.01 million, a remarkable rebound of 275.6% from the crisis-hit year of 2022, which saw only 29,802 arrivals, tourism development authority divulged.
However, the performance remains 25% lower compared to the same period in the benchmark year of 2018. September figure is also the lowest since June’s 100,388. In July and August arrivals amounted to 143,039 and 136,405 respectively.
In September, India emerged as the leading tourist-generating market with 30,063 visitors, constituting 27% of the total arrivals. Following closely were China with 8,445 arrivals, the UK with 7,504, Germany with 7,231, and Russia with 7,163.
Additionally, visitors from Australia, Israel, the Netherlands, France, and Canada contributed to the influx.
Notably, there was a significant surge in tourists from China, possibly attributed to the Golden Week holidays, which last for eight days from 29 September to 6 October, with bookings up nearly 20 times compared with last year.
According to the report released by the Golden Holidays period. Israel also played a role in this surge as its national carrier commenced direct flights to Colombo securing the seventh place.
In terms of year-to-date arrivals, India remained strong as the top market with 200,310 tourists, followed by Russia with 132,300 and the UK with 90.843.
The rise in tourist arrivals signals a promising development for Sri Lanka›s tourism industry, which faced successive challenges due to the Easter Sunday bombings in 2019, followed by the COVID-19 pandemic, and the economic crisis in 2022.
Sri Lanka Tourism authorities are cautiously optimistic about the prospects of continued recovery in the forthcoming winter season, with aspirations to welcome 1.55 million visitors by year’s end.
Colombo (LNW): The US government said a bondholder’s lawsuit against Sri Lanka over the country’s historic debt default should be put on hold.
In a statement of interest filed ON Monday (2) in New York federal court, the US backed the Sri Lankan government’s request to delay a lawsuit by Hamilton Reserve Bank Ltd. seeking full payment and accrued interest on more than $250 million in bonds that came due in July 2022.
The US said the delay would help with ongoing restructuring talks between the South Asian country and other creditors.
Sri Lanka fell into default in May 2022 after the expiration of a 30-day grace period for missed interest payments on two of its sovereign bonds, the first debt default by the country since it gained independence from Britain in 1948. Hamilton Bank sued Sri Lanka in July 2022.
Sri Lanka in July asked US District Judge Denise Cote to put the case on hold for six months. Cote had put her decision on hold until the US decided whether or not to file a statement of interest.
The French and UK governments previously asked the court to put the suit on hold.
The two countries said in a Sept. 6 letter that they were writing as members of the Paris Club, an informal group of official creditors that help coordinate repayments for struggling debtor nations.
They said delaying the case was “key to ensuring the success of the International Monetary Fund supported assistance program” for the nation.
Sri Lanka recently announced the completion of its local debt restructuring plan and is now engaging with other holders of Sri Lanka’s foreign debt, including China and India.
Hamilton Reserve has opposed the bid to postpone the proceedings, saying that putting them on hold “would be both contrary to US policy interests and an exercise in futility.”
The case is Hamilton Reserve Bank v. Sri Lanka, 22-cv-5199, US District Court, Southern District of New York (Manhattan).
Colombo (LNW): Turning the tide: Sri Lanka’s remarkable investment renaissance in Abu Dhabi and Dubai attracting investors’ attention on the country’s investment potential of Colombo Port City.
Sri Lanka’s economic and financial prospects, long neglected and recently marred by default, witnessed a remarkable resurgence in Abu Dhabi and Dubai on 26 September.
The most influential Chairmen and CEOs from approximately 90 corporations, accompanied by 300 potential investors, property developers, hotel owners, and leaders in the hospitality and real-estate industry, converged in the iconic settings of the Ritz Carlton in Abu Dhabi and the Armani Hotel at Burj Khalifa in Dubai.
This elite gathering took place in the august presence of the ruling families of UAE, united by a common purpose: to explore, understand, and assess the investment potential of Sri Lanka, with particular emphasis on the transformative Port City Colombo project.
The distinguished gathering had the distinct privilege of participating in a meticulously orchestrated dialogue, guided by the Right Honourable David Cameron, the erstwhile Prime Minister of the United Kingdom. Cameron eloquently expounded upon the compelling rationales that underscore the imperative of directing investments towards the nation of Sri Lanka.
David Cameron, the former Prime Minister of the United Kingdom, assumed the role of a true luminary.
With magnificent enthusiasm, an unwavering grasp of every detail, and an unshakeable conviction in the success of the Port City, he brought an indefatigable energy of purpose that radiated goodwill and warmth to all the investors he encountered.
Cameron’s presence at both events was nothing short of awe-inspiring. His commitment to the Port City project was palpable, and his energy was infectious. He approached every interaction with investors, whether one-on-one or in group discussions, with the same level of enthusiasm and dedication.
One of the most memorable moments of the events was the exchange of views between David Cameron and Niraj Deva.
Deva, a former British and European Member of Parliament and a key organiser of the events, served as the interlocutor during this captivating dialogue.
The stage came alive with their dynamic conversation, characterised by insightful questions and thought-provoking responses.
The UAE Roadshow was a watershed moment, thrusting Sri Lanka into the limelight of the UAE investor community.
This community, known for its global wanderings in search of the most competitive investment opportunities, suddenly found its focus squarely on Sri Lanka.
The unique and pioneering rules and regulations governing the Port City, overseen by an all-Sri Lanka Commission, captured their attention. These regulations were hailed for their transparency, efficiency, and accountability, qualities often elusive in other jurisdictions.
Colombo (LNW): The World Bank revised up its forecasts for Sri Lanka’s economy on Tuesday, noting the crisis-hit nation had made strides in reducing inflation and had benefited from tourism revenue as well as an appreciation in its currency.
The bank now expects the economy to expand 1.7% in 2024, up from an earlier forecast of 1%. It also said the economy is likely to shrink 3.8% this year, less than its earlier prediction of a 4.2% contraction.
In the last six months, Sri Lanka has seen runaway inflation drop to 1.3% in September, its currency appreciate by about 12% and foreign exchange reserves improve. It has also benefited from an increase in remittances.
But the World Bank also noted Sri Lanka’s outlook was still clouded by significant uncertainty and there were downside risks.
“Growth prospects will depend on progress with debt restructuring as well as continued implementation of growth enhancing structural reforms,” Richard Walker, a World Bank senior economist told a media briefing.
“We see further monetary loosening and potential exchange rate pressures, which could counter this downward inflationary trend,” he added.
Sri Lanka struck an agreement for a $2.9 billion bailout package from the International Monetary Fund in March but a potential shortfall in government revenue has meant that a second tranche of funds from the package may be delayed.
In contrast to the World Bank, Sri Lanka’s central bank has predicted a milder 2% contraction this year and growth of 3.3% in 2024. The economy shrunk 7.8% in 2022.
For South Asia as a whole, the global lender predicts growth of 5.8%, led by India which is seen expanding 6.3% in fiscal 2023/24.
But it added that regional growth was still slower than its pre-pandemic pace.
“While South Asia is making steady progress, most countries in the region are not growing fast enough to reach high-income thresholds within a generation,” Martin Raiser, World Bank Vice President for South Asia said in a statement.
Monetary operations are the money printing operations carried out by the CB on a daily basis in order to keep the inter-bank daily liquidity conditions consistent with the monetary policy decisions.
Monetary policy decisions are made on policy interest rates and other instruments. Such decisions show 2023 as the year of the peak of the supper tight monetary policy cycle as well as a sudden reverse cycle.
Therefore, this short article is presented to shed some light on the nature and outcomes of the CB’s monetary operations during first three quarters (nine months) of 2023. In this period, 14 September is a historic point of the transition of the monetary policy and operations from the 73 year-long Monetary Law Act to a new legislation, Central Bank of Sri Lanka Act enacted as required by the IMF.
The target group of the article is the economists conversant with concepts and practices on the monetary policy. The objective is to make them tend to ask themselves what the real purpose of the monetary policy operations for the economy and people of the country at large is.
The article is presented in two sections, i.e., monetary policy decisions taken in first three quarters of 2023 and highlights of underlying monetary operations and market outcomes.
I. Monetary policy decisions taken in 2023Six major policy decisions have been reported as shown below.
07 January 2023 – restricting the access of commercial bank to the CB’s overnight standing financial facilities for each bank:
Standing deposit facility only up to 5 days a month
Standing lending facility only up to 90% of the statutory reserve requirement of the bank
03 March 2023 – policy interest rates hike by 1% to 15.5% (SDFR) and 16.5% (SLFR)
01 June 2023 – policy interest rates cut by 2.5% to 13% and 14%
06 July 2023 – policy interest rates cut by 2% to 11% and 12%
08 August 2023 – statutory reserve ratio (SRR) cut by 2% to 2% to release nearly Rs. 200 bn of liquid funds to the banking system
25 August 2023 – issuance of the monetary order imposing maximum interest rates on bank credit products in order to require banks to reduce interest rates in line with the monetary policy
Accordingly, monetary tightening peak ends on 1 June and now prevails a loose monetary policy cycle since then.
The next monetary policy decision being the first decision to be made by the newly constituted Monetary Policy Board under the provisions of the Central Bank of Sri Lanka Act is due on 5 October 2023. The decision most probably will be a nice story for a further cut of policy interest rates by 2%-3% in consideration of inflation falling towards zero or negative faster than expected and the urgent need to stimulate credit flows now at low inflation/price stability for the fast recovery of the economy from the worst contraction encountered in the history.
II. Monetary operations
Monetary operations are carried out to maintain the inter-bank market liquidity conditions consistent with the monetary policy decisions. The operation instruments are the standing lending facility (SLF), standing deposit facility (SDF), reverse repo auctions (overnight and term basis) and CB’s direct purchase of Treasury bills.
Al these operations will have direct and indirect impact on money printing and inter-bank liquidity conditions.
In general, like in other central banks, the CB has numerical estimates over the aggregate amount of liquidity in the banking sector on a daily basis and the preferred amount of liquidity in line with monetary policy targets. Accordingly, monetary operations are carried out in a manner to fill the liquidity gaps, i.e., money printing (injection) to fill the liquidity deficit and cut the money printing (absorption) to remove the liquidity surplus.
The overriding objective of such monetary operations is to keep the volatility of overnight inter-bank interest rates around the levels preferred by the CB within the policy interest rates corridor (SDFR and SLFR). However, the monetary policy rhetoric on inflation control/price stability, promotion of growth, financial stability, stable exchange rate, etc., everything under the sun, beyond such monetary operations is highly conceptual and controversial.
Therefore, this article only provides highlights of monetary operations and their immediate outcomes on the surrounding money market with the support of suitable graphics.
1. Monetary operation instruments
Standing Facilities – SDF and SLF operations
From 16 January 2023, the use of standing facilities has collapsed due to restrictions or rationing imposed by the CB (see Chart 1 below). As a result, bank liquidity management through standing facilities has confronted an usual volatility forcing banks to look for other options. On the other hand, policy interest rates corridor-based monetary policy model also has collapsed due to the rationing of these overnight facilities.
Chart 1
Reverse repo auction/operations
Consequent to CB’s restriction on SLF, the CB had to inject liquidity through regular reverse repo auctions to prevent the rise in inter-bank interest rates. As a result, unlike in the past, the conduct of reverse repo auctions on both overnight basis and term basis have become a regular operation during the reference period.
Accordingly, nearly 168 auctions offered Rs. 9,850 bn and accepted bids of Rs. 7,537 bn (77%) out of total demand for Rs. 9,500 bn.
Overnight reverse repo auctions became a daily routine with 86 auctions offering Rs. 6,990 bn or 93% of all auctions (see Chart 2 below).
Average auction amount was Rs. 80 bn with the acceptance rate of 76.7%.
A fast reduction in overnight reverse repo volumes is seen from the mid-August possibly consequent to significant contraction in bank credit operations.
Chart 2
The determination of overnight reverse repo auction interest rates is questionable on several grounds (see Chart 3 below). First, reverse repo rates have been lower than SLFR although credit quality is same for both types of lending. Second, reverse repo rates have been mostly lower than overnight call money rates. Therefore, overnight reverse repo rate has been the de facto policy interest rate used by the CB to drive the inter-bank market as the policy rates corridor has collapsed consequent to the rationing of standing facilities.
Chart 3
7-day reverse repo auctions also were used frequently to inject short-term funds so that the pressure on overnight inter-banks rates is pushed down (see Chart 4 below).
Accordingly, 44 auctions offered Rs. 1,605 bn with the acceptance rate of 78.6% (Rs. 1,261 bn).
The significantly higher demand for 7-day reverse repo funds has been a general feature and, therefore, the CB has misjudged the demand by offering lower amounts.
Chart 4
Holding 7-day reverse repo rates at the level of SLFR is highly questionable as to why banks were offered funds cheaper than the overnight SLFR by restricting the SLF unnecessarily (see Chart 5 below). However, the last week of September is seen reducing reverse repo rates well below the SLFR, which has no economic rationale.
Chart 5
It is observed that long-term reverse repo auctions of several tenures from 10 days to 89 days have been conducted in an irregular manner targeting identified dealers. Nearly 32 such long-term auctions have been conducted offering Rs. 1,135 bn and accepting Rs. 821 bn (72%). The basis and levels of determination of reverse repo rates at these auctions are seen highly questionable as to what the monetary policy relevance is.
CB’s direct purchase of Treasury bills
The customary practice of the CB has been to subscribe to weekly Treasury bill auctions through the post-auction placements in order to control the short-end of the yield curve/yield rates of government securities in line with the monetary policy. In fact, the de facto short-term policy interest rate has been the Treasury bill auction yield. This practice of direct purchase of Treasury bills by the CB is known as the money printing to fund the government or monetary financing. Such money printing also serves as an indirect source to bank liquidity management outside the direct injection of liquidity by the CB.
It is observed the the CB has been managing the monetary system broadly with the holding of government securities in the range of Rs. 2,500 bn and Rs. 2,600 bn on a daily basis during the reference period while several bumps above Rs. 2,500 bn to Rs. 2,800 bn were also reported (see Chart 6 below).
The bump reported on 21 September is specific due to the conversion of outstanding provisional advances made by the CB to the government into government securities under the domestic debt optimization concept. Accordingly, such conversion amounting to Rs. 344.7 bn as at that date has resulted in raising the CB holding of government securities to historic Rs. 1,901 bn (face value).
Chart 6
Overall, the CB’s liquidity injection (net) has declined on overnight basis due to the impact of drastic restrictions/rationing on CB’s standing facilities (see Chart 7 below). However, the liquidity injection on outstanding basis has remained higher than overnight liquidity injection levels due to the cumulative effect of term reverse repo auctions especially introduced to push the inter-bank interest rates arterially down. Therefore, the reduction in liquidity injection by the CB and its high volatility during monetary policy easing cycle is highly questionable.
Chart 7
2. Money market outcomes
Overnight inter-bank volumes and interest rates
The objective of the CB to restrict standing facilities in mid-January is to activate the inter-bank market funds (overnight call money and overnight repos) and to drive interest rates down without changes in policy interest rates. However, data do not support this monetary policy hypothesis.
First, inter-bank market volumes have not surged as expected (see Chart 8 below). Instead, market volumes have been highly volatile and remained at lower levels.
Chart 8
Second, inter-bank overnight rates (call money and repo rates) have been mostly around the SLFR, the upper bound of the policy rates corridor (see Chart 9 below). A downward movement is observed from overnight call money rates only since August after 4.5% cumulative cut in policy rates since June. However, a parallel reduction is not observed from overnight market repo rates.
The ease of the market liquidity due to a release of Rs. 200 bn from statutory reserves consequent to the SRR cut by 2% in August could be an important factor to push down call money rates. However, there is a market aberration as market repo rates have not declined parallelly.
Chart 9
Treasury bill auctions and yield rates
The acceptance of bids worth more than offered amounts and rising access to post-auction private placements without bidding risk have been regular features of weekly Treasury bill auctions (see Chart 10 below).
A significant reduction in the offer to Rs. 50 bn is observed from the last auction held on 26 September as there was no rollover of Treasury bills held by the CB consequent to the conversion of the CB’s total Treasury bill portfolio of around Rs. 2,556 bn (face value) into 10 new medium and long-term Treasury bonds (maturing from 15 March 2029 to 15 June 2038) on 21 September. Therefore, the government will have a significant space for fiscal operations through borrowing from Treasury bill market at future auctions.
Chart 10
The market demand has been primarily for 91-D maturity bills, given market uncertainties amid the debt restructuring issues and concerns (see Chart 11 below). The significant volatility across accepted maturities is a grave concern over the market behaviour.
Chart 11
As in the past, the manipulation of yield rates to serve the requirements of the monetary policy, given the limited scope available with policy interest rates-based monetary policy model, continued to be observed during the reference period (see Chart 12 below). Both conduct of auctions and underwiring of auctions by the CB have been instrumental in this manipulation.
Further, the CB’s reluctance to reduce Treasury bill yield rates during the last two months despite the monetary policy thrust on lower interest rates is questionable. Given the significant reduction in the offer at the last auction to Rs. 50 bn as compared to recent auctions of mostly above Rs. 100 bn to Rs. 180 bn, the cut in yield rates is seen too marginal and not commensurate.
Chart 12
However, as the new legislation permits the CB to subscribe to auctions of Treasury bills up to the total outstanding at 10% of Treasury bill borrowing limit within a period of 18 month from 14 September, the CB will continue to use auctions to manipulate short-term market interest rates as usual.
Concluding Remarks
The short presentation made above shows that the country’s monetary operations during the reference period have been a set of wholesale trades of short-term money by the CB with a set of profit-seeking money dealers.
Consequent to new central bank legislation effective from 14 September 2023, the new CB is to admit private securities and shadow banks (finance and leasing companies) also into the wholesale fund/monetary trading equation whereas the purchase of government securities is prohibited for the new CB after a period of 18 months from 14 September.
The monetary order issued on 25 August to prescribe maximum interest rates on bank credit product has now seized to operate as the new central bank legislation on 14 September does not provide for such monetary powers. As such, new CB has to depend on wholesale money trades with the dealers to drive market interest rates.
As per IMF 1st review released last week, the CB has to implement a roadmap for addressing banking system capital and liquidity shortfalls and improving the bank resolution framework to ensure financial stability, given bankrupt status of the fiscal front. In that context, these monetary operations are only ad-hoc, micro management of bank liquidity conditions and serve no purpose to address the financial system stability issues.
Therefore, it is in the utmost national interest if economists and national leaders are prepared to question the real purpose of the present mode of monetary operations for the bankrupt economy and people of the country at large in the current context as nobody except wholesale money dealers seems to benefit from such monetary operations despite the fact that money is a highly regulated public good.
(This article is released in the interest of participating in the professional dialogue to find out solutions to present economic crisis confronted by the general public consequent to the global Corona pandemic, subsequent economic disruptions and shocks both local and global and policy failures.)
P Samarasiri
Former Deputy Governor, Central Bank of Sri Lanka
(Former Director of Bank Supervision, Assistant Governor, Secretary to the Monetary Board and Compliance Officer of the Central Bank, Former Chairman of the Sri Lanka Accounting and Auditing Standards Board and Credit Information Bureau, Former Chairman and Vice Chairman of the Institute of Bankers of Sri Lanka, Former Member of the Securities and Exchange Commission and Insurance Regulatory Commission and the Author of 12 Economics and Banking Books and a large number of articles published.
The author holds BA Hons in Economics from University of Colombo, MA in Economics from University of Kansas, USA, and international training exposures in economic management and financial system regulation)
