Central Bank initiates conversion of negotiable debt instruments under DDO 

In a move guided by Section 129(2) of the Central Bank of Sri Lanka Act, No. 16 of 2023, the Central Bank of Sri Lanka (CBSL) has executed the conversion of outstanding provisional advances from the CBSL to the Government, along with outstanding Treasury bills purchased by the CBSL in the primary market. 

This transformation has culminated in the creation of 10 step-down fixed coupon new Treasury bonds, and the consolidation of 12 existing Treasury bills, effectuated on 21 September. This strategic conversion serves the dual purpose of mitigating short-term liquidity pressures for the Government while upholding the financial stability of the CBSL. 

It also aligns with the commitment to reduce net credit to the Government, as pledged within the framework of the Government’s IMF-supported program. 

Under this conversion scheme, each series of Treasury bonds will receive a 12.4% coupon semi-annually until the 2nd semi-annual coupon payment date in 2024. Subsequently, the coupon rate will transition to 7.5% from the 1st semi-annual coupon payment date in 2025, persisting until the 2nd semi-annual coupon payment date in 2026. 

Finally, a 5% coupon rate will apply from the 1st semi-annual coupon payment date in 2027 until the respective maturity date. 

Central Bank Governor Dr. Nandalal Weerasinghe disclosed this strategic move during a public forum following Governance Board approval. 

Analysts said this marked the end of the DDO process. T-bill supply is likely to take a big drop from next week. Short-term rates will come down.

This calculated move by the Central Bank demonstrates a commitment to prudent financial management and strategic planning, aimed at ensuring the stability and resilience of Sri Lanka’s financial landscape.