Central Bank says no significant increase in money printing

The Central Bank of Sri Lanka (CBSL) yesterday said despite the media reports on increased money printing to help finance the government’s fiscal commitments, the monetary authority is well within its projections for this year, in terms of expanding the monetary base.

The CBSL said 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 November 2, 2018.  

“This is a year-on-year growth in reserve money of 11.6 percent, which is well within the CBSL projections for the year,” the Central Bank said.    
Usually, money printing refers to the expansion of reserve money (monetary base).

Meanwhile, the CBSL said rupee liquidity in the domestic money market has been in deficit since mid-September 2018, requiring them 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,” the CBSL stressed.  

“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 November 2, 2018.

However, on a gross basis, the CBSL holdings of government securities were Rs.67.4 billion on November 2, 2018. The fact that the growth in reserve money has remained subdued shows that the recent OMOs have not had an undue expansionary effect on money supply in the economy,” the CBSL noted.