Waruni Jayathunga
Sri Lanka’s domestic money market liquidity recorded a surplus of Rs. 168.1 billion by the end of December 2024, marking the first positive liquidity balance in two years. The Central Bank attributed this shift primarily to foreign exchange purchases and swap transactions.
According to the Market Operations Report, liquidity conditions in the domestic money market have been improving since April 2024, culminating in the Rs. 168.1 billion surplus at year-end.
The Central Bank stated that these improvements were largely driven by net foreign exchange purchases and swap transactions amounting to Rs. 883.2 billion. However, liquidity was partially offset by several factors, including Treasury bill maturities held by the Central Bank (Rs. 240.0 billion), coupon payments on Treasury bonds (Rs. 300.7 billion), and net currency withdrawals (Rs. 172.2 billion).
“Structural liquidity also improved and remained in surplus at Rs. 168.1 billion by the end of December 2024,” the Central Bank confirmed.
Despite the overall improvement in liquidity conditions, the Central Bank noted that it had to intervene regularly in the domestic money market through Open Market Operations (OMO) due to asymmetrical liquidity distribution among market participants. This imbalance, it said, was caused by a cautious approach and stringent risk mitigation measures adopted by some Licensed Commercial Banks (LCBs), particularly foreign banks, following Sri Lanka’s sovereign rating downgrade.
However, the Central Bank highlighted that this situation improved towards the end of 2024 and is expected to further stabilise with the recent upgrade of Sri Lanka’s credit rating.
