T-bonds guzzled up
Excess rupees in banking system amounts to Rs. 42 bn
Authorities not interested in sterilisation at a cost, bids rejected Friday


The Public Debt Department of the Central Bank auctioned Treasury bonds amounting to Rs. 2.5 billion yesterday and the offer was oversubscribed 3.37 times, attracting bids amounting to Rs. 8.4 billion.

A bond maturing in 2015 attracted bids amounting to Rs. 3.75 billion of which Rs. 1 billion was accepted. Rs. 1 billion was accepted of bonds maturing in 2016 after bids amounting to Rs. 3.1 billion were received. A bond maturing in 2020 attracted bids amounting to Rs. 1.57 billion of which Rs. 500 million was accepted.

Dealers said the demand for government securities continued to be very high given the high amount of liquidity in the system.

"Credit growth is sluggish and in the absence of viable private sector projects to which excess liquidity can be lent to, demand for the next best option, government securities, is very high and this bond auction reflected this situation," a dealer told The Island Financial Review.

Another dealer said investor sentiments reflected confidence that interest rates would remain low for another one and a half years, but some dealers said interest rates on government securities have probably not bottomed off yet which could prompt another policy rate cut.

"This also means that government has access to funds at lower rates and this could help contain the budget deficit," a dealer said.

Meanwhile, the high liquidity level in the banking system could lead to inflationary pressure and the Central Bank absorbs excess liquidity each evening through its open market operations.

Last Friday it offered securities to mop up Rs. 32 billion from the market, for which bids were received amounting to Rs. 40.71billion, but the Central Bank accepted only Rs. 11.28 billion at 8.04 percent.

"This indicates that the authorities are not willing to engage in sterilisation activities at a higher cost," a dealer said, adding that the rejected bidders would have bid at higher rates.

Dealers said the excess liquidity levels were above Rs. 30 billion each day last week. It was Rs. 41.9 billion on Friday and Rs. 42.1 billion yesterday.

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