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Sri Lanka forex reserves drop to US6.4bn in October

ECONOMYNEXT – Sri Lanka’s forex reserves dropped 313 million US dollars to 6,484 million US dollars in October 2015 from a month earlier, which includes a 1.1 billion US dollar swap with the Reserve Bank of India.

On October 19, the Central Bank bought a large tranche of dollar after the government sold a 330 million US dollar floating rate bond and sterilized at least 300 million dollar of the proceeds.

When the central bank sterilizes or takes out of the banking system the rupees it generated from as forex purchase, the cash (or a similar amount from the banking system) cannot be used to generate credit, demand, and imports and remains in the forex reserves.

But in the subsequent two weeks more money was printed by purchasing Treasury bills again, though not all of the cash had moved out of the country by the end of the year.

In October a 400 million US dollar foreign exchange swap with the Reserve Bank of India was due to expire.

Sri Lanka’s remaining 6,685 million US dollars of reserves also contain 1.1 billion US dollars borrowed from the Reserve Bank of India in September. Without the swap, reserves would be down to 5.38 billion US dollars.

In November Sri Lanka sold a 1.5 billion US dollars and the Central Bank bought the dollars and against sterilized the liquidity equal to about a billion US dollars.

Sri Lanka’s is in balance of payments trouble due to low interest rates and an expanding budget deficit. (Colombo/Nov09/2015)

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