The Central Bank of Sri Lanka yesterday reiterated that its agreement with the Federal Reserve Bank, New York (FED) is not extraordinary by any measure and constitutes an independent financial instrument available for use when required by Central Banks around the world.
The statement found widely in media that the CBSL is pledging US$ 4.5 billion worth of US Treasury Securities to obtain a credit facility of US$ 1 billion is totally false, the CBSL said last night in a news release.
The Central Bank of Sri Lanka (CBSL) has recently entered into an agreement with the Federal Reserve Bank, New York (FED) as a temporary source of US dollar liquidity to be used when required, the CBSL said. The facility, in technical jargon, is an overnight Repurchase (Repo) facility available for “Foreign and International Monetary Authorities” (FIMA).
As part of the contingency plans to meet COVID-19 related difficulties, the CBSL has decided to pledge a sum of US$ 1 billion worth of US Treasury Bonds held in the CBSL reserve and enter into the above type of Repo facility with the FED. This would permit the CBSL to raise US$ 1 billion in cash form when required.
“Many central banks in the world have resorted to this facility to meet their short-term US dollar liquidity requirements.
This facility enables a Central Bank to secure short-term funding when needed, without having to make any sudden structural adjustments to its long-term investment portfolios in foreign exchange,” the CBSL said.
When this Repo facility is settled by the CBSL, there will be no change in the CBSL Reserve position as the FED would release the pledged bonds back to the CBSL. The cost to the CBSL would be the applicable Repo fee, which is about 0.35 per cent per annum, the CBSL said.
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