Sri Lanka forex reserves down to US$6.14bn in Jan

ECONOMYNEXT – Sri Lanka’s forex reserves had fallen to 6.1 billion US dollars in January 2019, down from 6.91 billion US dollars in December, Central Bank data showed.

The Central Bank had to use its reserves to repay maturing bonds and other loans in January 2019, after generating foreign exchange shortages by printing money and de-stabilizing a peg with the US dollar.

The Central Bank expected to end the year with up to 9.7 billion US dollars in 2018, but analysts had warned that it would not be able to collect reserves. The country could go into dollar sovereign default when it starts to print money to enforce artifically low interest rates (Sri Lanka is recovering, Central Bank threat looms: Bellwether).

Sri Lanka operates a peg with multiple convertibility undertakings, but also targets a domestic inflation index by printing money after inflation falls, undermining the credibility of the peg. (Colombo/Feb11/2019 – Corrected – SB)

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