The Central Bank Governor Dr. Nandalal Weerasinghe on Friday said Sri Lanka utilises cash deposits held in State banks to settle a portion of bond auctions, especially if the Government deems bid yields to be in line with market rates.
During the recent bond auction, only Rs. 73 billion out of the targeted Rs. 250 billion was sold, sparking speculation about the settlement methods employed.
The Governor clarified that the Treasury no longer relies on monetary financing in these auctions, highlighting a positive shift in financial strategies.
Instead, the Treasury has built up a buffer, ensuring smoother handling of any shortfalls in both weekly and monthly auctions.
Dr. Weerasinghe stated that the general practice was to notify the Government’s financial needs of the market ahead of time through weekly bill auctions and bond auctions.
“If the Government thinks that their decision to accept at a certain rate is appropriate with market rates, they have the flexibility. They also can reject if they think the rates are too high. The flexibility and the ability to accept whatever the amount is based on the buffer they have built up,” he added.
He emphasised the effective utilisation of this buffer, indicating a proactive approach to managing cash flow in Government securities through market forces.
FT