ECONOMYNEXT – Sri Lanka’s forex reserves dropped 638 million dollars to 6,887.2 million US dollars in July 2015 from a month earlier, official data showed amid record low interest rates and high credit financed State spending.
Sri Lanka’s forex reserves peaked in August 2014 at 9,185.64 million US dollars amid a credit contraction and began to drop as credit picked up.
The current credit and foreign reserve cycle began in February 2012, with the float of the currency and a hike in interest rates after the then administration triggered a balance of payments crisis by printing money to cover credit driven fuel subsidies.
Reserves fell to 6,774 million in February 2012 before rates were raised were raised and contradictory monetary and exchange rate policy ended a sterilized foreign exchange sales cycle.
The current gross reserve level of 6,887 million dollars is with a 400 million dollars swap facility from the Reserve Bank of India received in April.
Sri Lanka’s reserves have been hit by low interest rates, which has driven up consumption and credit, excessive state spending which is also financed by credit and sell down of rupee bonds held by foreign investors, especially after a rate cut in April 2015. (Colombo/Aug08/2015 – Corrected date February 2012)