ECONOMYNEXT – Sri Lanka’s forex reserves had dropped 416 million US dollars to 7,212.7 billion US dollars in April 2019 from 7,629.2 billion rupees in March, official data showed.
In April 2019 Sri Lanka had to repay a 500 million US dollar sovereign bond.
Foreign reserve values could go up because of interest earned on the dollars, inflows to the government or private sector, which exceed outflows due to weak domestic credit.
The central bank has bought dollars steadily since the beginning of the 2019 as bank credit weakened and the peg shifted to the strong side of its convertibility undertakings.
In March the central bank bought 86 million US dollars to maintain a soft-pegged exchange rate regime using is strong side CUs.
In April however the central bank had bought 51.2 million US dollars and also sold 34.5 million dollars deploying a weak side convertibility undertaking to maintain the soft-pegged regime after Easter Sunday Islamist bomb blasts unnerved markets.
Sri Lanka’s central bank also has an additional convertibility undertaking in the form of purchasing dollars from the Treasury regardless of whether the peg is on the weak or strong side.
Analysts have pointed out that it is deadly on the peg when bank credit is strong. (Colombo/May18/2019)