ECONOMYNEXT – Sri Lanka will use the instruments at its disposal, including liquidity injections, to stabilize interest rates, which has been exceeded in the opinion of central bank governor Nandalal Weerasinghe.
Market interest rates rose by about double the hike in policy rates, from 7.50 to 14.50 percent, he said.
“That’s why we think there is an overshoot,” Governor Weerasinghe said. “That’s where we think we need to stabilize interest rates. We made a few interventions.
“In rupee interest rates, we can give central bank funding to the primary market and through open market operations,” Governor Weerasinghe said.
He said the market was allowed to play a role, but rates went over.
“In the rupee market, we have instruments,” Weerasinghe said. “We have advice as well as instruments.”
On Wednesday, the central bank rejected most offers in the Treasury market, which rose to levels above 24%.
When the central bank buys the treasury bills, rupees are injected into the market, which can then trigger currency shortages, fuel shortages and power cuts when a 360 to the rupee is held in the rupee market. changes.
“We rejected the last auction,” Weerasinghe said. “We will continue to do so until interest rates moderate.”
A pegged central bank triggers currency crises primarily through open market operations to suppress interest rates.
Governor Weerasinghe had raised policy rates and market lending rates rose to around 19.0% and deposit rates are also up.