Sri Lanka foreign reserves drop in May 2013

July 19, 2013 (LBO) – Sri Lanka’s foreign reserves dropped to 6.6 billion US dollars in May from 6.85 billion US dollars in April partly due to due payments to the International Monetary Fund and falling gold prices, the Central Bank said. The Central Bank said it repaid 225.5 million US dollars to the IMF and was hit by valuation losses of 312 million US dollars on gold and currency movements.

This year more than 500 million US dollars in foreign reserves have to be repaid to the IMF.

The Central Bank which made profits on gold trading over several years was on the buy side towards the latter part of 2012, according to official records.

Sri Lanka also cut the reserve ratio and poured liquidity in to the banking system in July which were not fully drained from the banking system requiring reserve sell-down to maintain the exchange rate when the new rupees hit the forex market..

In order to collect foreign reserves domestic credit has to be killed by sell-downs of central bank’s Treasuries stock.