CB to set up a clearing house for bonds

By Charumini de Silva

Sri Lanka’s banking watchdog, the Central Bank, yesterday confirmed that it was looking at opportunities to set up a clearing house for bonds in the near future.

Central Bank Governor Arjuna Mahendran said Sri Lanka could effectively raise funds for the Government if the bond market was opened up effectively.

“The bond market is a fantastic way to fund the Government. After opening up the bond market we can do it quite easily on the local markets. I want to go deeper. I want to set up a bond clearing house which we never had. Once we build a clearing house for bonds, we have enough of domestic savings to fund the deficit,” he said.

He went on to say that there was no liquidity on the country’s bond market and as a result nobody is trading these instruments.  

“Let’s set up a clearing house first and then we can have a trading system on that. Thereby, people can start trading these bonds on a daily basis and make a little money on that,” he said.

The Governor said that during the previous regime the Government was borrowing $ 1.5 billion annually through commercial bonds whereas under the new regime they raised only $ 650 million this year and they are managing to obtain the rest through the rupee market.

“This way the dollar depreciation does not affect our budget and I would prefer to go with that model. What that proves is that there is a massive pool of rupee savings waiting to be tapped, which we have not tapped efficiently in the past,” Mahendran added.