Sri Lanka Joins Global Money Printing Contest

I have been saying that global central banks have embraced Bernanke’s approach as a newfound doctrine (here and here) such that ALL central banks have practically been engaged in money printing in one form or another.

Sri Lanka reportedly joins the money printing bandwagon via forex intervention.

From Lanka Business online 

Sri Lanka's central bank has sterilized a foreign exchange sale injecting 8.0 billion rupees in one-month money into the banking system, ending several weeks of monetary policy that has been favourable of a stronger exchange rate.

On Friday the central bank printed 8.0 billion rupees for one month at 9.81 percent, slightly above the 9.75 percent reverse repo rate at which overnight liquidity is injected into the banking system for 31 days.

Until Thursday the monetary authority was injecting cash overnight in to the banking system, following a large liquidity shortage that occurred in late September. In a pegged exchange rate system, a large liquidity shortage occurs through an unsterilized foreign exchange sale.

While overnight rupee injections also generate demand in the economy, it can be less damaging than longer term cash injections, since bank managers will not try to grow the loan book while funding the balance sheet with overnight liquidity.

Instead they will try to cover the positions by curbing loan growth or raising more deposits or both.

But central bank liquidity injections through term Treasury bill purchases allow banks to focus on loans again, preventing the adjustment of the economy to the outflow of money through the central bank foreign exchange sales and triggering balance of payments trouble.

Here is the 6 month chart of Sri Lanka’s Colombo Stock Exchange

Central banks worldwide have been blowing bubbles.