ECONOMYNEXT – Sri Lanka’s Central Bank bought $136 million of foreign exchange from Commercial Bank, and there were no sales in June, official data showed.
Sri Lanka’s forex reserves rose $193 million to $6,953 million in June. In May, the Central Bank bought $183.4 million from banks and sold $35 million.
The data do not track official flows.
In May, the Central Bank brought down its Treasury bill stock from around 250 billion rupees to 211 billion rupees, sterilizing the purchases. In June, the bill stock was further brought down to around $190 million.
However, in July, excess liquidity has been allowed to remain in money markets and the Central Bank’s Treasury bill stock has been static. Any rupee proceeds of dollarpurchases sloshing around in the banking system can be loaned out and end up in forex markets.
The Central Bank typically generates balance of payments pressure by holding down rates with printed money when credit demand rises, triggering excess credit and imports, which outstrip dollar inflows.
Private credit slowed sharply in April, and the budget deficit is improving, but state energy entities are borrowing. Borrowings of state energy entities end up one-to-one in forex markets.
Sri Lanka’s official reserve statistic is made up of dollars purchased by the Central Bank against rupees, which go to its balance sheet and dollars in Treasury accounts. (Colombo/July17/2017)