Excess liquidity in the banking system grew ahead of this week’s LKR 250 billion Treasury bond auction
Overnight liquidity in Sri Lanka’s banking system expanded to LKR 173.80 billion, up from LKR 163.07 billion in the prior session, according to Central Bank data, as excess funds in the system built ahead of Thursday’s large Treasury bond auction.
The increase of roughly LKR 10.7 billion in a single session marks one of the more notable liquidity movements in recent weeks, within a range that has generally held between LKR 155 billion and LKR 175 billion since mid-July. Liquidity conditions have fluctuated over the period, with levels dipping in the days following July 22 before recovering toward Monday’s reading.
The expansion in system liquidity coincided with a decline in short-term Treasury bill yields, with the 91-day rate falling 18 basis points to 9.95% at the most recent auction, suggesting ample short-term funds are keeping near-term borrowing costs contained even as yields further out on the curve have risen.
Money market fund yields offered by unit trusts reflected similarly accommodative short-term conditions, with average yields on money market and money plus funds tracking in the 8.0–8.6% range as of July 26.
Business Impact
Elevated system liquidity generally supports lower short-term interest rates, easing near-term funding costs for banks and, by extension, for businesses reliant on short-term credit facilities. Ample liquidity heading into a large government bond auction can also support demand at the sale, an important factor as the PDMO looks to raise LKR 250 billion in new bonds this week.
Key Numbers
| Metric | Value |
|---|---|
| Overnight Liquidity (Latest) | LKR 173.80 billion |
| Overnight Liquidity (Prior Session) | LKR 163.07 billion |
| Change | +LKR 10.73 billion |
| 91-Day T-Bill Yield | 9.95% (-18 bps) |
| Money Market Fund Avg. Yield | ~8.60% |
Source: Central Bank of Sri Lanka statistics and publicly available market information.