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Sri Lanka forex reserves stable in December 2016

ECONOMYNEXT – Sri Lanka’s official forex reserves were stable in December 2015 at 7,292.34 million dollars up slightly from 7,281 million dollars a month earlier, data from the central bank shows. The central bank began to tighten monetary policy slightly in early December mopping up some of the money it was printing to finance the budget deficit with outright sales of Treasury bills and short term auctions. Net foreign investor sales of Treasuries had also waned in recent weeks. The Central Bank has sold 272 million US dollars to intervene in the interbank market forex markets, slowing from 306 million dollars in November. However purchases of forex from official inflows are not captured in the data. Though state banks were not very visible in interventions over recent weeks, the data indicates that the central bank now intervenes in the forex market through private banks. Sri Lanka had 3.69 billion US dollars in principle and 1.32 billion dollars in interest totaling 5.01 billion dollars in the 12-months starting November 2015, compared to 4.56 billion US dollars a year earlier. Analysts say it possible to pay the loans if resources are generated by curbing domestic credit. If money is printed to repay domestic Treasuries, it drives up credit and there are ‘shortages’ of foreign currency to pay loans. The central bank is also committed to swaps of 3.1 billion US dollars compared to 2.25 billion US dollars a year earlier.

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