Sri Lanka January 2020 forex reserves drop to US$7.56bn

ECONOMYNEXT – Sri Lanka’s January 2020 official reserves fell 116 million dollars to 7,626 million dollars from 7,642 million dollars in December 2019, official data show.

Reserves are up from 6.1 billion US dollars in January 2018, when a currency crisis ended.

The central bank built forex reserves as credit weakened in 2019, selling down its domestic assets.

Sri Lanka’s official reserves are made up of fiscal reserves managed by the central bank, and the monetary authorities own reserves including gold.

Reserves may fall due to changes in cross currency valuations, interest earnings, the price of gold and repayments of foreign debt using fiscal reserves.

Around July the central bank reversed monetary policy and started injecting liquidity and engaging in ‘operation twist’ style activity, unsettling an exchange rate peg, despite weak private credit.

The central bank was a net buyer in forex markets in November. There were some marginal sales in December.

Sri Lanka cut rates on January 30. There are concerns about rising budget deficit as private credit starts to recover. (Colombo/Feb08/2020)