Oct 26, 2007 (LBO) – Sri Lanka’s central bank said the balance of payments surplus in 2007 would more than double to 450 million dollars with the help of a sovereign bond issue, after holding policy rates steady in October. “This inflow has stabilized both the exchange rate and market interest rates and this trend is expected to continue further during the remaining months,” the Central Bank said in its monetary policy statement for October.
The spot dollar has appreciated to 112.30 in the market now, up from 113.45 levels before the bond issue which raised 500 million dollars from international markets.
The Sri Lanka rupee fell sharply against the dollar from May in the face of heavy central bank money printing and worsened subsequently in the face of sterilized intervention by the monetary authority.
The central bank said the bond issue would help keep a lid on inflation through “stable exchange rates and government debt service payments due to the declining interest costs on government securities.”
Sri Lanka has been running down international reserves by both money printing and reserve appropriations and domestic assets had risen to about half of base money by August.