Sri Lanka foreign reserves top US$4.0bn

Sept 15, 2009 (LBO) – Sri Lanka’s gross foreign reserves have topped 4.0 billion US dollars on September 10, the highest in the island’s history, the Central Bank said. The Central Bank also acquired dollars by directly swapping domestic assets to a foreign fund manager.

The central bank started to collect foreign reserves after floating the currency in March which ended a period of liquidity injections (money printing) and peg defence, which reversed a cycle of expansionary sterilized intervention.

At the height of intervention foreign reserves dipped to around a billion US dollars from 3.5 billion when interventions began.

In July Sri Lanka also received the first tranche of a 2.6 billion US dollar International Monetary Fund loan and later a distribution of IMF’s special drawing rights.

But most of the reserves were collected from the market by reversing a cycle of sterilized interventions following the float. Sterilizations are now contractionary.