Govt. ramps up borrowing in October; CB allays inflationary fears

• Govt. borrows Rs.281bn on net basis in Oct. up from Rs.199bn in Sept.
• CB says such action won’t stoke inflation due to lower demand and growth 

The government ramped up its borrowings in October as the virus resurgence necessitated pumping more money into the hands of the public while powering the essential services required to control the spreading of the virus.

The State borrowed Rs.281 billion on net basis from the banking sector, up from Rs.199 billion in September. 

The Central Bank liquidity provided to the government by way of purchasing treasury bills and bonds rose from Rs.322 billion end-September to Rs.488.17 billion by end-October.
The Central Bank last week dismissed speculations of such activity stoking inflation, citing subdued demand pressure and lower growth prospects. 

Meanwhile, the average cost of government debt has sunk record times in recent times, not just in Sri Lanka but also elsewhere due to extremely low interest rates and massive quantitative easing deployed in response to coronavirus. 

As of November 27, the Central Bank held Rs.568.12 billion in government treasuries. The inflation measured by the Colombo Consumer Price Index was at 4.0 percent in October—at the lower bound of the 4-6 percent range desired by the Central Bank.

Meanwhile, the net borrowings by State-owned corporations turned negative for the second month in a row in October by Rs.15.0 billion from Rs.5.0 billion in September, indicating that public corporations were settling bank debts.