CBSL Acknowledges Inflationary Pressure on Rates

By Paneetha Ameresekere | Published: 12:20 AM Jun 11 2021

By Paneetha Ameresekere

The Central Bank of Sri Lanka (CBSL) in an acknowledgement of inflationary pressure and uncertainty bedevilling the market has increased the maximum administered yield (MAY) of the 2028 maturity on offer at today’s Treasury (T) Bond auction by eight basis points (bps) to 7.33 per cent.

 But in the previous auction held for this maturity, ie in the auction of 29 April 2021, the MAY fixed for this tenure was at a ‘low’ 7.25 per cent, resulting in that auction ending up in a damp squib, with CBSL being able to sell only Rs 2,000 million (eight per cent) of the total parcel of Rs 25,000 million originally offered at that auction. 

Meanwhile, the total parcel offered at today’s T-Bond auction is Rs 25,000 million comprising 2026 maturities at a MAY of 7.33 per cent and Rs 10,000 million of 2028 maturities at 8.05 per -unchanged over the 2028 maturity’s MAY fixed at the 1 June 2021 auction. The 2028 maturity’s MAY was first uplifted to 8.05 per cent at the 1 June auction, also an increase of eight bps, when, after its MAY which was fixed at 7.97 per cent at the 12 May 2021 auction, that saw only Rs 9,500 million of the original parcel of Rs 10,000 million on offer, sold. But after its MAY was uplifted to 8.05 per cent for the 1 June auction, that saw its parcel of Rs 10,000 million on offer fully subscribed at a weighted average yield (WAY) of eight per cent, five bps below its MAY of 8.05 per cent.

 But CBSL and the Government of Sri Lanka (GoSL, aware that discretion is the ‘better part of valour,’ has ‘persisted’ in fixing the MAY for the 2028 maturity at a higher cost of 8.05 per cent, rather than at a lower MAY of eight per cent, at which ‘low’ price, the parcel on offer at the 1 June auction, also, Rs 10,000 million; was fully subscribed, ipso facto at a ‘lower’ WAY of eight per cent. CBSL/GoSL wants to artificially maintain a low interest rate regime to minimize GoSL’s borrowing costs and to spur growth. CBSL is the steward of GoSL debt.

By Paneetha Ameresekere | Published: 12:20 AM Jun 11 2021

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