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Sri Lanka forex reserves rise to US$7.4bn in April with India swap

COLOMBO (EconomyNext) – Sri Lanka’s foreign reserves rose to 7.4 billion US dollars in April 2015 from 6.8 billion US dollars in March, helped by a 400 million US dollar swap from the Reserve Bank of India.

The Central Bank said the forex reserves equalled 4.3 months of imports.

The Central Bank said it observed that "reserves are increasing since beginning of April 2015, reversing the declining trend experienced during the first quarter of the year."

Foreign reserves are expected to grow further with other tranches of a 1.1 billion US dollar swap from India being activated, as well as other investments flows, the Central Bank said.

Sri Lanka’s balance of payments went negative from September, when credit to government picked up sharply. In the first two months of the 2015 the balance of payments deficit was 692.1 million US dollars, compared to a surplus of 809.9 million US dollars in 2014.

Analysts have warned that the Central Bank’s low interest rates and the release of liquidity in the face of rising state credit in particular will boost imports and generate a run-down of foreign reserves through current transactions, a depreciation of the currency or both.

Swaps are a type of short-term borrowed reserves that have to be paid back.

A swap does not fix an underlying macro-economic imbalance. Even reserves borrowed from the International Monetary Fund does not fix any underlying imbalance but a program is agreed to raise rates and put ceilings on domestic borrowings of the state and also the monetary base.

This April foreign reserves rose 600 million US dollars, more than the 400 million central bank swap.

April however is usually a good month to collect reserves, as there are exporter conversions to pay festival as well as remittances for the traditional New Year holiday season.

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Generally in May, there is renewed exchange rate pressure, analysts say.

 

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