Excess liquidity in the banking system rose to LKR 362.14Bn, up from LKR 355.30Bn previously, even as the secondary bond market saw yields push higher on selling pressure
Excess liquidity in Sri Lanka’s banking system expanded to LKR 362.14Bn, up from LKR 355.30Bn recorded previously, according to Central Bank data. The increase of roughly LKR 6.8Bn, or approximately 1.9%, extends a broadly range-bound pattern seen over recent weeks, during which excess liquidity has fluctuated between roughly LKR 330Bn and LKR 362Bn.
The uptick in system-wide liquidity comes alongside CBSL holdings of government securities, which have held relatively steady at elevated levels through the period. Taken together, the two data points point to ample short-term funding conditions within the banking system.
The liquidity improvement occurred on a day when the secondary government bond market told a somewhat different story. Selling interest dominated bond trading, with yields on several mid-to-long tenors moving higher, including a 5 to 10 basis point increase in the 2030 maturity segment during the session and week-on-week increases of up to 30 basis points further along the curve. Short-term Treasury bill rates, by contrast, continued to ease, with the most recent auction seeing 91-day, 182-day and 364-day rates decline between 8 and 17 basis points from the prior auction.
The combination of ample banking system liquidity and softer short-term bill rates suggests near-term funding conditions remain accommodative, even as the market prices in higher compensation for holding longer-duration government debt.
Business Impact
Improved system liquidity is generally supportive of credit availability and can help keep short-term borrowing costs contained for businesses reliant on working capital facilities. However, the divergence between ample short-term liquidity and rising mid-to-long tenor bond yields suggests that businesses planning longer-term financing should be mindful that borrowing costs further out on the yield curve are moving in the opposite direction. Banks and treasury units may find near-term funding conditions comfortable while facing a steeper cost curve for longer-tenor instruments.
Key Numbers
| Metric | Value |
|---|---|
| Banking System Excess Liquidity | LKR 362.14Bn |
| Previous Excess Liquidity | LKR 355.30Bn |
| Change | +LKR 6.84Bn (+1.9%) |
| 91-Day T-Bill Rate | 9.00% (-5bps) |
| 182-Day T-Bill Rate | 9.30% (-10bps) |
| 364-Day T-Bill Rate | 9.70% (-10bps) |
| 7-Year Bond Yield (Bid) | 11.55% (+30bps WoW) |
| 8-Year Bond Yield (Bid) | 11.80% (+30bps WoW) |
Source: Central Bank of Sri Lanka statistics and publicly available market information.