CB sells only fraction of T-bills as it rejects bids at higher yields

The Central Bank managed to sell only a fraction of the Treasury bills issued at the auction held yesterday in a reflection that majority bids had come at much higher yields although expectations are rising for the yields and the rates to ease in the next three to six months, with the higher taxes helping the government to reduce its borrowings. 

The Central Bank offered Rs.75.0 billion in bills under three, six and 12-month tenures, with a greater tilt towards the three-month tenure as typically seen in recent times but accepted only Rs.16.1 billion in total bills, of which Rs.14.4 billion were from the three-month bills. This is the second consecutive week the accepted bids fell short of the offered amounts by the Central Bank. However, this week’s auction saw a bigger gap between the offered and the accepted amounts after some time. 

It appears that majority of the bids have come well above the yields the Central Bank offered under each tenure.  The yields remained unchanged from last week’s levels at 33.05 percent, 32.53 percent and 29.60 percent for three-month, six-month and 12-month bills, respectively, as the Central Bank accepted only bids that came at last week’s auction while rejecting the rest.  Since the tax rates were raised from October, there were widespread expectations among the market participants that the yields and the rates would ease in the medium term, as higher revenues would help the government to rely less on market borrowings. 

In a statement yesterday, President and Finance Minister Ranil Wickremesinghe said the government remains ready to discuss the recent tax hike, if they are deemed excessively high and assured that the taxes would be assessed periodically.  He made these comments after last week’s gazetted income tax hikes sparked a strong backlash from certain sections of the opposition and specially the professional categories whose monthly earnings, which are usually in excess of Rs.100,000 a month, would be taxed up to 36 percent at its highest level under a slab system.  Most Sri Lankans aren’t used to paying higher taxes on the incomes they earn, as they either dodge the legitimate tax liability or evade them by employing various means but expect first class infrastructure and services from the government.  On the same breath, successive governments stand culpable for misappropriating and wasting even the little tax money they raise and thus were unable to win over the taxpayer because of the lack of trust.