CB raises limit on foreign Treasury bonds and bills

• 2.5% increase to support economy momentum and take advantage of Eurozone crisis

Responding to a dollar pegged currency and Eurozone crisis, the Central Bank raised the limit on foreign holdings in Treasury bonds and bills by 2.5 per cent to 12.5 per cent, a statement said yesterday.

Statistics indicate that foreign investors hold over Rs.68 billion worth of Treasury Bills and Rs.200 billion in Treasury bonds.

However, around Rs. 4 billion has exited from the local bond holdings in the past week but the Central Bank has assured that the economy is on track to post healthy growth of eight per cent or more in 2012.

“The Central Bank has decided to raise the current threshold for foreign investments in Treasury bills and Treasury bonds from 10 per cent of the outstanding Treasury bill and Treasury bond stock to 12.5 per cent in order to support the growth momentum of the economy,” the statement said.

It added that this was necessary to enhance resource availability, while also easing the domestic savings-investment gap and thereby mitigating any pressure on interest rates.

Foreign investors have expressed continued interest in investing in the Government securities market, as a result of growing uncertainties in advanced economies and greater prospects in emerging economies, the Central Bank noted amid several European countries being placed on credit watch.   

Standard and Poor’s on Monday placed 15 Eurozone nations on negative credit watch indicating that they have a 50 per cent chance of a downgrade. Among the credit watch countries ‘AAA’ rated are The Netherlands, Luxembourg, Finland, Austria and Germany.

“The robust growth of credit extended by commercial banks as seen so far during the year is expected to continue, while the Sri Lankan economy grows at a healthy pace. At the same time, both headline and core inflation remains subdued. Nevertheless, the diminished level of excess liquidity in the domestic money market has caused an upward movement in short-term market rates in recent weeks,” the Central Bank added.