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Sri Lanka foreign reserves drop to US$6.466bn in August 2015

Sep 07, 2015 08:03 AM GMT+0530 | 0 Comment(s)


ECONOMYNEXT - Sri Lanka's forex reserves had dropped 420 million US dollars to 6,466 million US dollars by end August 2015, down from 6,887.22 billion in July, amid continued sterilized forex sales, official data show.

Without 400 million US dollar swap from the Reserve Bank of India, foreign reserves are down 34 percent from a peak of 9,185 million US dollar in August 2014.

Last week Sri Lanka got another 1.1 billion US dollars from the Reserve Bank of India, which would could help boost reserves closed to 7.0 billion US dollars or above.

Sri Lanka's foreign reserves dropped to 8.05 billion rupees in February 2012, after the Central Bank printed money to accommodate credit for oil subsidies and sterilize forex sales and keep interest rates down.

The current balance of payments crisis was generated by printing hundreds of billions of rupees to finance a budget deficit and sterilize foreign exchange sales to keep interest rates down.

Economists have pointed out that Sri Lanka's central bank's targeting of dual internal and external anchors are fundamentally flawed and needs urgent reform.

On Friday the rupee was interventions were reduced to try to abandon the external anchor, but analysts have warned that a rake hike is needed to correct domestic credit growth.

In the last monetary policy statement the Central Bank admitted that it was 'concerned' about credit growth pointing fingers at some sectors, though analysts say interest rates incompatible with the budget deficit in particular and credit generally is the key problem.

Sri Lanka failed to reform its Central Bank after the collapse of the similarly flawed neo-Mercantilist Bretton Woods system in the 1970s.

Swaps however are borrowings, which have to be repaid. (Colombo/Sept07/2015)


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