Colombo, June 29 (NewsHub.lk) – The Central Bank injected Rs.23 billion worth liquidity last Friday, taking the printed money stock in excess of Rs.900 billion as the monetary authority is now forced to provide liquidity to the cash-strapped government after the latter closed down the economy for a month.
Last week Central Bank’s holdings of government securities or the printed money stock had risen by Rs.34.51 billion since the country went into a near total lockdown on May 21 through June 18, 2021, bringing the total outstanding printed money stock to Rs.896.24 billion.
However, on June 25 alone, the Central Bank provided fresh liquidity worth Rs.23 billion to the government bringing the total holdings to Rs.919.22 billion.
The Central Bank was scaling back its holdings from Rs.904.02 billion in early April to Rs.856.65 billion by early June but it soon had to reverse course as the government was losing money from tax income while bills are adding up for payment including the State sector salaries and for virus containing efforts.
Meanwhile, the government last week sought parliamentary approval for an additional Rs.200 billion spending to assist the economy gutted by the restrictions, which accounts for an additional 1.2 percent of the Gross Domestic Product. The new spending will expand the budget deficit from the projected 9.5 percent to 10.7 percent in 2021.
Unlike in the developed markets, Sri Lanka cannot print money excessively, while keeping its economy shuttered, which could result in inflation and Balance of Payment deficits.
Even the United States ran 13-year high inflation in May when it registered 5.0 percent increase in consumer prices as a result of excessive monetary and fiscal stimulus continuing for over a year.
Sri Lanka also saw inflation spiking to 6.1 percent in May with the food inflation running at over 10.0 percent.