Dec 06, 2010 (LBO) – Sri Lanka’s central bank sold 89.05 million US dollars in November to maintain the country’s peg, with the US dollar as credit grew and economic activities picked up, official data show. Excess liquidity in the banking system is still high at 128 billion rupees. The bank is a net seller for the third month running.
In September the Central Bank bought 37.05 million US dollars in forex markets and sold 106.6 million. In October sales increased to 324.2 million US dollars while purchases were 35.5 million US dollars.
In November there were no purchases.
Throughout 2009 the Central Bank was a net buyer of forex, as it bought dollar inflows and sterilized the rupee proceeds through outright sales of central bank held securities, locking up the dollars proceeds in foreign exchange reserves.
Sterilization by outright sales of securities takes the rupees out of bank reserves and prevents them from being loaned for domestic economic activities.
Excess liquidity (overnight sterilized rupee reserves) has been allowed to remain high after the proceeds of a billion dollar bond arrived in Sri Lanka. Meanwhile credit growth has also picked up.
Dollar sales absorb some of the excess liquidity in the banks as higher economic activity draws in imports.