8 billion rupees of Treasury bills at an auction Wednesday without moving rates up, the government's debt office data showed, but it was later offering more bills at average rates, dealers said.
However, analysts say in the past excess liquidity had been inflationary in Sri Lanka due to exchange controls that prevent the free movement of capital out of the island. The government's debt office originally said it was only rolling over 9,610 million rupees of bills, though 14,994 million rupees in bills were maturing.
At the auction however, the debt office, which is a unit of Sri Lanka's Central Bank, accepted 1.2 billion more offers from the market.
Dealers said it was standing by to sell more bills at auction rates. The practice of putting only part of the bills on auction was started late last year.
The debt office said it raised 6,056 million rupees in 3-month bills with the average rate coming down 8 basis points to 18.
40 percent.
The 6-month yield was flat at 18.
95 percent with 4,242 million in bills sold and the 12-month yields fell 2 basis points with 535 million rupees being sold.
Earlier in the day overnight rates fell as low as 12.
45 percent in the overnight repo market amid heavy excess liquidity.
Excess liquidity in the overnight market is now around 14 billion rupees, dealers said.
Most of the money is externally generated with analysts saying that the Central Bank is maintaining a tight peg with the US dollar in recent weeks.