Sri Lanka gets more cash, path open for reforms: IMF

Feb 03, 2011 (LBO) – Sri Lanka has got 216.6 million US dollars from the International Monetary Fund despite missing one key target and lack of data for another, with the lender banking on better budgeting and inflation control. The dollar reserves are more than enough to convert the entire rupee monetary base which is about half that as well as another billion dollars or more which remains as excess reserves in the banking system.

In the last quarter the Central Bank sold dollars to prevent the exchange rate going down which absorbed some of the excess reserves but in December it was again a net buyer in forex markets.

The Central Bank has gradually appreciated the rupee.

“The central bank has been building up reserves while allowing the exchange rate to appreciate,” the IMF said in its public information statement.

“Looking ahead, however, the exchange rate will need to be sufficiently flexible in both directions to safeguard external stability.”

A pegged exchange rate central bank that defends the exchange rate and injects liquidity (prints money) at the same time can lose the entire reserves in a short time.

But the Central Bank has generally not printed money in 2010 and now keeps its active