Sri Lanka October official reserves US$2.37bn

Dec 11, 2008 (LBO) – Sri Lanka’s foreign reserves had fallen to 2,374 million US dollars by the end of October from 3,185.4 million dollars in September the Central Bank said amid heavy intervention in forex markets. In October the central bank spent 587.70 million dollars intervening in the market, but November intervention volumes which usually come at the end of the month, have not yet been released.

“In November we spent less than in October,” Central Bank chief economist Nandalal Weerasinghe told LBO.

Sri Lanka has been losing reserves partly because foreign investors were selling out of domestic government securities markets.

But analysts say most of the money went to cover trade transactions because the monetary authority was maintaining an unsustainable peg with the US dollar.

On Thursday the Central Bank allowed the rupee to trade without intervention and after dipping to 111.30/60 levels against the greenback it recovered to 110.85/111.00 levels.

Dealers say the market participants were expecting the central bank to intervene at 111.00 levels and volumes were thin.

The rupee closed Thursday at 111.30/45 levels.