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Sri Lanka forex reserves rise to US$7.1bn in July 2020 after India swap

ECONOMYNEXT – Sri Lanka’s gross forex reserves grew by 407 million US dollars to 7,102 million US dollars by the end of July 2020 up from 6,694.6 million US dollars in June, official data showed.

In late July Sri Lanka’s central bank received 500 million US dollars from the Reserve Bank of India through a swap arrangement.

Sri Lanka’s forex reserves started to hemorrhage after the central bank engaged in a monetary stimulus from late February injecting large volumes of money, despite having a pegged exchange rate to collect forex reserves.

But private credit was negative in May and June, which helps stem outflows. Authorities also slapped the worst import controls seen since in the island since the collapse of the Bretton Woods system of soft-pegs in 1971.

Though total foreign reserves fell in June, due to debt repayments, the central bank bought dollars in the forex markets as credit turned negative.

The central bank also stopped the rupee from appreciating beyond 185 to the US dollar back to 182 to the US dollar as credit fell, in suspected de facto real effective exchange rate targeting. (Colombo/Aug08/2020)