Sri Lanka official reserves US$1.7 billion in December

Feb 19, 2009 (LBO) – Sri Lanka’s foreign reserves fell to 1,753 million US dollars in December from 2,030 million US dollars in November which was enough to finance 1.5 months of imports, the Central Bank said. Gross official reserves with Asian Clearing Union (ACU) funds was 2,561 million US dollars which was enough to finance 2.2 months of imports.

But Sri Lanka is in the midst of a trade contraction with December imports falling 9.7 percent and exports falling 19.1 percent with steeply falling commodity prices, including oil.

Measured in projected months of imports, reserves would be higher.

Sri Lanka’s reserves have been falling since mid-September when the monetary authority started to defend a dollar peg and simultaneously intervened in the domestic money market to off-set or ‘sterilize’ liquidity shortfalls.

In the early part of 2008 foreign reserves were climbing steadily and reserves hit 3.4 billion at the end of August, when sterilization was aimed at draining liquidity, from the banking system.

The direction of sterilization reversed in mid-September, triggering a sterilized intervention spiral.

The rupee has fallen from 108.00 to the US dollar in September to just over