ECONOMYNEXT – Sri Lanka’s gross official foreign reserves dropped 421 million US dollars during the month of July 2019 to end at 8,343.9 million US dollars, official data showed.
Gross official reserves are made up of Treasury’s dollar balance and central bank monetary reserves which are tied to the pegged reserve money of the country.
Drops in Treasury reserve come from debt repayments and do not reflect any balance of payments trouble.
Balance of payments trouble come from printing money to resist a contraction of the pegged money supply through the outright purchases of Treasury bills or reverse repurchase auctions, in the course of opeating a soft-pegged exchange rate regime or ‘flexible exchange rate’
In July the central bank’s Treasury bill stock came down from 124 billion rupees to 126 billion rupees, indicating that the monetary authority was mopping up inflows.
However in August the central bank had injected at 14.9 billion rupees to resist a contraction of the monetary base from a weak-side convertibility operation of the peg at rate close to a floor rate of the policy corridor. (Colombo/Aug09/2019)