The monetary authority is now battling the effects of a weak budget in 2006 which has a deficit of 9.1 percent of GDP with the country's inflation already at 19.2 percent in March.
On Friday rates eased below 20 percent with the proceeds of a 215 million dollar government dollar bond issue coming to cool the interbank cash markets.
The central bank however swiftly mopped up the liquidity in the market by selling down a part of its Treasury bill stock at fire sale rates.
A t-bill stock of 1.5 billion rupees with 14 days remaining to maturity was sold at an average rate of 17.1 percent, while a 1.8 billion rupee stock of 21 day bills was sold at 19.
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3 percent.
Dealers say cut offs were much higher. The bank also drained three billion rupees through a repo auction at 11.
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8 percent.
The central bank's Treasury bill stock, the principle tool of 'money printing' to finance the treasury's cash deficit had moved up to 54.6 billion rupees by Thursday from the level 49 billion rupee level on March 01.
In Friday's monetary policy statement the bank did not raise its policy discount rate (reverse repo) from 12.00 percent.
Analysts point out that the policy rate had now become largely irrelevant with the monetary authority clearly on a path of quantity targeting at least until the current runaway inflation is brought under control.
Twelve month consumer inflation in Colombo was high in February at 19.2 percent, though marginally down from the 20.5 percent recorded in January.
With money printing largely under control the central bank is promising lower inflation from April.