Sri Lanka expected global shock to slow credit: CB Governor

Apr 16, 2012 (LBO) – Sri Lanka expected a global slowdown to moderate credit in the second half of 2012 and did not tighten monetary policy but spent foreign reserves to maintain growth, a top official said. Reserve Risk

Sri Lanka sterilized the balance of payments amid warnings from both the International Monetary Fund and other analysts not to do so.

But Cabraal said that the central bank had collected large volumes of reserves, equal to about six months of imports to be able to spend them when necessary.

“If you have six months of (imports) of reserves I do not see any need to protect it at six months and sacrifice your growth,” he said.

“Now that is where some people may not really agree. But what is the use of having six months of reserves if you do not use it to preserve your growth momentum also?

“It is like saying, ‘I have all these savings, and my child meets with an accident, I will keep my savings and not deal with the child’.

“What we have done is, we have utilized a part of the reserves that were in excess of what we needed, and we have sued a part of that to ensure that stability is maintained for a longer period.”

Other analysts and economists have