CB stops overnight auctions

Thursday, 21 October 2010 06:21 -     - {{hitsCtrl.values.hits}}

 Central Bank on Wednesday stopped its liquidity mopping up process via overnight auctions under open market operations as the rates in the auction have been higher than policy rate and T-bill yields.

Currency dealers said the Central Bank had informed all the commercial banks that there will be ‘no overnight auctions under open market operations until further notice’.

“We have stopped it and it will continue until further notice,” K.D. Ranasinghe, the Central Bank’s chief economist told Reuters. “The banks come through standard rate at 7.25 percent. There are no restrictions on that.”

The Central Bank has been using the overnight auctions to control excess liquidity in the market aiming to curb future demand-driven inflationary pressures.

The rate at overnight auction in the past weeks have been more than 7.68 percent, much higher than the Central Bank’s repurchase rate of 7.25 percent and Treasury bill yields.

“This may be due to higher bids in the last few T-bill auctions,” said an analyst on condition of anonymity. “The market has been bidding at high rates on higher inflationary expectations.”

Yields in 182- and 364-day T-bills have risen 14 and 12 basis points respectively in the last three straight weekly T-bill auctions while the Central Bank was able to accept only around 30 percent of the required amount through the auctions as banks had been investing through overnight auctions, dealers said.

The Central Bank has been on an easing monetary policy since November 2008 to allow economic growth in the $42 billion economy which is recovering after the global recession and a 25-year of war that ended in May last year.

The Central Bank on Tuesday maintained its key policy rates for a second straight month despite annual inflation has been on a rising trend since July, hitting a five-month high in September.