Economy Forward

  In my article released to this blog on 7 June revealed a significant loss to the public caused by the issuance of Treasury bills at the auction held on 31 May 2023. The loss occurred as the Central Bank (CB) did not reduce the auction yield rates in line with the 2.5% reduction in policy interest rates determined by the CB in the same day afternoon although the Governor and Tender Board members had the prior knowledge. This article reveals an early warning on a similar policy irregularity that can happen at the next T bill auction due on 5 July (tomorrow), the day before the next monetary policy meeting. Background Inputs On 27 June, the CB announced the advancement of the next monetary policy review to 6 July at 7.30 am from the normal scheduled date of 13 July. At this advanced, breakfast meeting, the Monetary Board will decide on the overnight policy interest rates of the CB, i.e., standing deposit facility rate and standing lending facility rate on overnight money p...

According to the media, the Parliament yesterday, 1st July 2023,  has  approved with 122-62 majority the resolution for granting the authority to the Minister of Finance, Economic Stabilization and National Policies, to implement a domestic debt optimization (DDO) to restore the sovereign debt sustainability. However, official contents of the DDO considered under the resolution are still unknown to the public except the PowerPoint presentation made by the CB Governor to the Cabinet on 28 June 2023. The purpose of this article is to shed some light on how the EPF has been victimized by in the Central Bank functions of debt management, monetary policy and fiscal agent and to call upon an independent inquiry before implementing the DDO to victimize the EPF again in a discriminatory manner. Highlights on DDO - CB Governor's  PowerPoint  presentation Only concepts on DDO relating to Treasury bills held by the Central Bank, Treasury bonds held by superannuation funds ...

  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...