Money printing, 41% of liquidity
Ceylon Finance Today: With money printing comprising 41.47% of excess liquidity, the weighted average rate (WAR) of overnight market repo transactions increased by two basis points (bps) to 5.83% at yesterday's trading.
Ceylontoday, 2015-05-28 02:00:00
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Money printing, 41% of liquidity
By Paneetha Ameresekere
Ceylon Finance Today: With money printing comprising 41.47% of excess liquidity, the weighted average rate (WAR) of overnight market repo transactions increased by two basis points (bps) to 5.83% at yesterday's trading.
Money printing comprising more than 40% of excess liquidity translates to the fact that inflows, mainly in the form of export or remittance conversions have all but dried up. A low interest rate as that which is prevailing now, only helps to rein in such inflows.
This is because exporters would rather prefer to borrow to meet their commitments, rather than convert their proceeds in to rupees. Due to excess liquidity being Rs 117.4 billion as at yesterday, the weighted average yields of three, six and 12 month Treasury (T) Bills fell by one, three and two bps each to 6.07%, 6.18% and 6.29% respectively yesterday, while the WAR of call money decreased by one bp to 6.10%.
Money printing translates to Central Bank's (CB's) T-Bill holdings, which as at yesterday was a massive Rs 48.7 billion. The danger in money printing, which in this instance translates to lending money to the government to meet its various expenditure commitments is that it fuels demand side inflationary pressure. Inflation hits the poor and the fixed wage earner the hardest.
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