Sri Lanka forex reserves drop 10-pct to US$5.1bn in March
ECONOMYNEXT – Sri Lanka’s forex reserves dropped $514 million to $5,119 million in March from a month earlier, Central Bank data showed.
Sri Lanka’s forex reserves usually drop when the Central Bank prints to finance the government and defends the exchange rate when the newly minted cash drives up credit and ends up in the forex markets as imports.
Sri Lanka usually ends up printing money to sterilise interventions and maintain a policy rate incompatible with credit demand and inflation or the exchange rate target.
Sri Lanka’s forex reserves can drop when government loans are repaid with forex reserves, reserve assets falls on revaluation and repayments are made to the International Monetary Fund for loans taken in 2009.
However, it is not clear whether there were any IMF repayments in March.
Sri Lanka missed an IMF reserve collection target for December and repaid tens of billions of rupees of a maturing bond with printed money in a self-destructive move, in a bout of fiscal dominance of monetary policy.
The Central Bank scrambled to undo the damage over the next five weeks.
Analysts have warned that the IMF programme lacks a domestic asset ceiling, which would have prevented the Central Bank from printing money and protect it from fiscal dominance. (Colombo/Apr10/2017)