Economy Forward

  The public panic created by the 5-day banking holiday (29th June to 3rd July) announced by the CB Governor in the night of 25th June is now not a secret. The purpose of the banking holiday was stated as required to keep the banking and markets stable to facilitate the proposed domestic debt restructuring/optimization approval process of the Parliament. Whenever there are panic-driven transactions and tremors in the  banking  sector, banks face stress liquidity conditions or liquidity crunches. Five sources that banks resort to raise the liquidity or funds during normal times are as follows. Use of excess cash available at hand Borrow from the inter-bank market Sell investments in government securities in the secondary market Borrow from the overnight standing lending facility of the Central Bank Borrow from the reverse repo auctions if announced by the Central Bank What happened during the last three days 26-28 June The limited data published by the CB shows early warni...

  Last night, through a breaking news, the CB Governor declared a 5-day banking holiday from 29th June as required to complete the Parliamentary approval process for the government domestic debt optimization in line with a IMF condition.  However, this has caused a panic and a tremor among the public as to the reason for such a banking holiday announced first time in Sri Lanka and as to whether whether their deposits are safe consequent to such debt optimization. My short article released to this blog last night  briefed on serious concerns and facts relating to the press statement of the CB Governor.  Breaking News - 5 bank holidays for govt. debt optimization - The purpose is questionable? As I warned, early warnings are available today itself that panic depositors have started withdrawing deposits from some banks and, as a result, banking liquidity conditions are facing a noticeable crunch as usual.  Evidence on a bank liquidity crunch caused by a deposit out...

Last night, the CB Governor abruptly announced a bank holiday of 5 days from coming 29th. Accordingly, a special bank holiday was announced for 30th so that 4 actual holidays plus the special holiday become 5 days of bank holiday. I felt panic whether my deposits at banks could be unsafe. The reason is that, as I am aware from other countries, the authorities declare bank holidays to prevent any anticipated bank runs or panic depositors running to banks to withdraw their deposits unexpectedly. However, the purpose of the bank holiday declared above was described as the time period required for the completion of the government domestic debt optimization already announced in the media. The news presented by the CB Governor covered following items. The government and the Ministry of Finance have decided the time frame to complete the process of domestic debt optimization. The process is involved in getting approvals from the Cabinet, Finance Committee and Parliament. For this purpose, ban...

My article issued to this blog presented how a loss of at least Rs. 5 bn to the public occurred on the T bill auction held on 31 May 2023  https://www.blogger.com/blog/post/edit/1750758681943837098/3764734156067582644 . The reason is the implunged decision of the T bill Tender Board not reducing the auction yield rates in line with the policy rate cut of 2.5% by the Monetary Board awaited in the afternoon. This article shows how the loss to the public accumulates from subsequent auctions due to the above error in policy decision.   How the loss is accumulating As T bill yield rates  at the auction held on 31 May 2023  were not reduced at least by 2.5% parallel to the policy rate cut, the loss to the public by way of higher yields (or discounts) paid on T bills issued at each auction from 31 May 2023 is accumulating because effects of the policy rate cut transmit to T bill yield rates at several subsequent auctions. Accordingly, the accumulating loss is as follow...

  Last night, I saw an interesting document "  Medium-Term Debt Management Strategy (MTDS)"  displayed in the CB's website under Public Debt Management whose link is given below. https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/20190412_pdd_medium_term_debt_management_strategy_2019_2023.pdf According to recent response to the media, the CB now operates more transparently than before. In this context, readers will be surprised that how the above document of MTDS is applicable to the current debt management function of the CB. As the CB will unload this document quietly, readers are invited to peruse it immediately. A few highlights of the MTDS as presented in the document Singed by RHS Samaratunga, Secretary to the Treasury, and Indrajith Coomarswamy, Governor, CB, on 05 April 2019 valid for 2019-2023. As the document is still in the CB Website, it has been effective until the present time. Developed the Medium-Term Debt Management Strategy (MTDS) wi...

  This article shows how the monetary policy uses insider delas to make losses to the government on public debt management. The default of public debt for rework of debt contracts (so-called debt restructuring) is ample evidence for mismanagement of public debt by the Central Bank as the debt manager and fiscal agent since 1950. The monetary policy decision to cut policy rates by 2.5% in the afternoon 31 May 2023, the Treasury bill auction decided on same day afternoon along with a private issuance and the Treasury bill auction held on today (7 June) show how the Central Bank uses insider acts to cause losses to public funds. Treasury bill auction held on  31 May 2023 The Central Bank raised Rs. 160 bn at weighted average yields rates around 23%-25% (see the Table below) and a private issuance of Rs. 40 bn at the auction weighted average yields of 25.65% and 25.29%,  which are almost same yields on the previous week's auction held on 24 May 2023.   However, when...