Central Bank gives Rs.107bn in printed money to CPC to finance fuel imports

After the Central Bank last week disclosed that it had received a request from the General Treasury to provide liquidity to the value of Rs.217 billion to finance fuel imports by Ceylon Petroleum Corporation (CPC), the data showed that the Central Bank had issued Rs.107 billion to CPC, on Friday.

In a special issuance of Treasury bills to the Central Bank, the government had borrowed the said amount as CPC is still undergoing an acute rupee liquidity crunch, on top of the dollar crunch, even after it raised the prices of the petroleum products to sky-high levels in multiple times, through what has now turned out to be a controversial pricing formula.  

Central Bank Governor Dr. Nandalal Weerasinghe, disclosing the dilemma they are facing between taming skyrocketing consumer prices and providing financing to the government’s urgent financing needs, said monetary financing or money printing is not something they like doing. 

“Monetary financing is something neither we nor the Treasury likes to do but under the current context, we are compelled to meet certain requests to meet their exigencies,” said Dr. Weerasinghe.

However, he said unlike in 2020 and 2021, where a colossal amount of money was printed to buy dollars from the Central Bank to settle foreign loans and also to make up for the other funding shortages of the government, today money printing happens with much restraint.

Until September last year, the Treasury bill auctions saw only a fraction of being subscribed by the market, due to the yield controls and hence the balance had to be bought by the Central Bank through printed money, which also added to the exponential monetary expansion.

However, now the monetary financing happens only when the government runs out of money to pay salaries, pensions and to provide funding to public utilities such CPC and the Ceylon Electricity Board to ensure fuel and electricity supplies.  

Dr. Weerasinghe said even in the week before last, the Central Bank provided the Treasury with Rs.18.5 billion through a special bill auction for the same purpose. 

Despite the intentions by the Central Bank to shrink its over Rs.2.2 trillion balance sheet, the lack of revenues generated by the government in meeting its expenditure appeared to be delaying it. 

The total stock of government securities held by the Central Bank topped Rs.2.23 trillion as of last Friday, after surpassing the Rs.2.0 trillion levels on June 17.