Sri Lanka should reveal data on interventions, forex reserves: civil activist

Nov 24, 2011 (LBO) – Sri Lanka should reveal data on interventions and foreign exchange reserves and the rationale for a step devaluation of the rupee instead of a market determined float, a civil society activist has said. Chandra Jayaratne, a former head of Sri Lanka’s largest business chamber, said the Central Bank should reveal the value of market interventions over the past six months, net foreign exchange reserves and other data.

He also called for an explanation of the rationale for a step devaluation of the rupee through the budget instead of market determined

Jayaratne said the information is needed for “intellectual debate as well as integrity and transparency oriented transparent accountability by the Central Bank and the Monetary Board”.

He said there was a common belief that interventions in the past three months were around 500 million US dollars.

Analysts who track the central bank closely however estimate reserve losses from August 2011 to be more than twice that number.

Sri Lanka’s Central Bank has not revealed data on forex interventions since August when 197 million US dollars were spent on deals with commercial banks. September and October interventions data has been delayed.

Sri Lanka has delayed data on forex reserves during balance of payments troubles in the past.

But data on net foreign assets of the Central Bank indicated a decline of about 860 million dollars in September alone.

Reserve losses could happen due to interventions in the interbank forex markets, loans settlements of the state and marked-to-market values of different assets.

Even with recent declines analysts say the Central Bank has net reserves above its domestic monetary base and has no difficulty in meeting its own liabilities (domestic note issue).

However analysts have expressed concerns about a cycle of interventions and off-setting liquidity injections which needs a clean float to break.

Jayaratne also called for an explanation for the “rationale and justification for the Budget announcement driven depreciation of the rupee” by three percent as against the expected market oriented float of the rupee.

Step devaluations do not end currency pressure if a new peg is defended at that lower level and off-setting liquidity injections continue in money markets to sterilize the interventions.