Money market liquidity plunges by Rs.50bn as CB settles bond

Money market liquidity fell by Rs.47.63 billion last Friday, marking one of the largest single day declines as the Central Bank settled a billion dollar bond on behalf of the government, but the bank conducted open market operations auctions, in an indication that it remained committed to maintain surplus liquidity in the money markets.

The total outstanding money market liquidity—which was a surplus of Rs.187.03 billion on September 30, a day prior to bond settlement—plunged to Rs.139.4 billion on October 02. October 1 was a public holiday.

Meanwhile, the total value of Treasury bills and bonds stock held by the Central Bank or the printed money stock spiked Rs.123.1 billion on October 2 as the bank purchased Treasury bills equivalent to that amount to facilitate the bond repayment on behalf of the government.

As a result, the value of the government securities held by the Central Bank spiked to Rs.445.16 billion on October 2, the highest so far this year from Rs.322.06 billion on September 30. This also helped the Central Bank to keep the overnight rates from rising, which could have led to a liquidity shortage caused by the bond retirement.

The Central Bank holdings of government securities have risen from around Rs.70 billion at the beginning of this year to Rs. 418 billion by June 24 as it provided liquidity to the government to help fight the pandemic and to sustain other government functions by purchasing Treasury bills and bonds—a practice known as ‘liquidity provisions’ in Central Banking parlance. However, since then it had come down to about Rs.294 billion by September 17 before rising again.