CB will print money when absolutely warranted to avoid bigger crisis: Governor – Business News

Central Bank will have to print money while failure to do so leads to even bigger problems such as non-payment of state sector wages, says Central Bank Governor Dr. Nandalal Weerasinghe , adding that they do so with greater responsibility and restraint now than before, however.

Since the Central Bank shocked the markets with an unprecedented 700 basis point hike in policy rates on April 8, weekly treasury bill auctions have seen full or near-full subscriptions, showing that funding needs government are largely satisfied via the market rather than central bank liquidity.

Dr Weerasinghe said they are engaging in printing money with great restraint than before and only in cases where the government needs the money to meet extremely essential or urgent fund requirements such as the payment of salaries in the state sector.

In response to a reporter’s question about rumors that the government was running out of money to pay salaries for state sector employees from July, the governor said he remained obligated to support the Treasury in cases where the treasury could not cope with the finances on its own, because the damage you cause by not paying wages is far greater than printing money.

In other cases where the expenditure is not urgent and essential, the Central Bank advises the Treasury to postpone or eliminate such expenditure.

The Secretary of the Treasury, during the last week of April, issued a circular to all heads of government departments to reduce or cut spending.

According to the data, the Central Bank holds a portfolio of treasury bills and bonds worth 1,869.84 billion rupees as of Wednesday, little change from 1,849.70 billion rupees on 8 April, when the new governor took office and the sharp adjustment in policy rates was made.

The Central Bank could soon begin to reduce the size of its Treasury bill holdings over the coming period if fiscal revenue and spending reforms in the form of tax increases, utility pricing on the market and a temporary halt to big-budget infrastructure projects are being implemented.

The U.S. Federal Reserve last week raised its short-term rate by half a point, the most since 2000, and announced the reduction of its balance sheet by about $9 trillion from June 1, initially by 47.5 billion dollars per month, an amount which will then be increased. to $95 billion a month after three months.

This will have the effect of dampening the record stimulus unleashed on the economy during the two years of the pandemic and significantly tightening monetary policy to bring inflation back to its target level of 2.0% over the medium term.

US inflation rose to 8.3% in April 2022 from a year ago, down from 8.5% recorded in March, but still higher than expected. When the United States entered the pandemic, the size of the US Fed’s balance sheet was around US$2 trillion and it launched a monthly bond-buying program after cutting rates to lows. close to zero to stimulate and prevent companies from defaulting.

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