Sri Lanka's forex reserves rebound in June to US$ 6.7bn: Central Bank

 

Sri Lankan forex reserves have risen from $6.49 billion in May to $6.7 billion in June, helping with retail purchases and rupee-dollar swaps amid restrictions on imports, officials said.

Sri Lanka's rupee collapsed to nearly 200 US dollars where interventions are minimised after printing money causing the peg to fall, and importers fear into new bill cover. It follows an increase in private credit in March fired by liquidity injections and a fear-inducing 'flexible exchange rate'.

Private credit dropped in April, and a pick-up occurred in May. The Central Bank sold $174 million in March to defend the peg and $98 million in April partially. Private credit in April dropped to 12 billion rupees, but in May it raised to 30 billion rupees. The Central Bank purchased 61 million US dollars in May to prevent appreciation, data show.

"Our net intervention would be nil by today or tomorrow," said Chandranath Amarasekera, Director of Economic Research at the Central Bank. He said the other fall in the balance had been due to debt repayments. The fall of the currency caused sweeping import controls of the type 'Nixon effect' unseen since the 1970s.

The Central Bank funded the budget with printed money and pumped excess liquidity into the banking system at the overnight rate. Central Bank Governor W D Lakshman said import controls had improved the rupee's value.

"However, the ban on imports and investments, allowing for a gradual recovery of inflows, has helped to stabilise the exchange value over the past three months," said Governor Lakshman.

Some countries do not print money as Sri Lanka does. Such states, for example, Thailand and Vietnam, have seen their currencies stable or rise as credit and demand weakened, whereas countries, where the law forbids money printing, including Singapore and Hong Kong, have improved.

In the first week of March, Hong Kong, which operates a currency board at 7.8 per US dollar, saw the currency reach the upper trading band at around 7.79 per US dollar and is now trading on the lower trading band at 7.74 per cent.

OSL Take: The increase in foreign holdings in Sri Lanka rupee bonds is indicative of the level of confidence in Sri Lanka's economy and interest in investment. Therefore, foreign investors could confidently explore investment opportunities in Sri Lankan bonds.

Sri Lanka's export portfolio has expanded continuously, and now poultry will be added to the long list of exports.

Among the many advantages afforded by Sri Lanka is its ecological positioning in the Indian Ocean, the ease of doing business environment, its many trade agreements as well as the trade privileges it enjoys.

All this has made the island a business hub and the best venue to carry out exports to the global market. Foreign businesses/investors could, therefore, explore business opportunities in Sri Lanka's export market.

 VBS/AT/11082020/Z_TB4