MP Rohini Wijerathna misses the forest for the trees on money printing

9 January 2025 12:00 am Views - 92

MP Rohini Wijerathna claimed that the current government is engaging in “money printing” similar to the former Gotabaya Rajapaksa administration. To support this, the MP highlighted (1) an increase of LKR 36.16 billion from an overnight auction on 25 October, (2) an LKR 70 billion increase in term auctions during the week 21 to 27 October, and (3) an LKR 55.4 billion rise in excess liquidity over the last month [September 2024]. 
Money printing is a colloquial term used to describe how a central bank increases the total base money in an economy (also referred to as reserve money). This consists of three components:  
Currency in circulation,  

Deposits of commercial banks held at the Central Bank, and  
Deposits of government agencies at the Central Bank.  
FactCheck.lk assessed the MP’s claim from the data published by the Central Bank of Sri Lanka (CBSL). 
The MP correctly notes two Open Market Operations (OMOs), which are daily and weekly liquidity injections by the CBSL to the commercial bank for various purposes. However, changes in reserve money (i.e. increase or decrease in money printing) occurs not only through OMOs. It does through other means such as direct financing of government debt, purchases of foreign assets, and variations in the Central Bank’s net asset position. 

CBSL data shows that reserve money decreased from LKR 1,516 billion on 26 September 2024 to LKR 1,500 billion on 24 October 2024. This indicates that while reserve money was increased through OMOs in that period, it was reduced through other components of it. This resulted in a net decrease of reserve money—not an increase as claimed by the MP.
By looking only at OMOs, which are only a component of reserve money, and failing to note what happened to reserve money as a whole, the MP has missed the forest for the trees in respect to money printing—and claimed it increased during the period, when it actually decreased.
Therefore, we classify the MP’s claim as FALSE.

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