Sri Lanka targets foreign exchange reserves of US $ 4.0-4.5 billion by year-end (Central Bank)




ECONOMYNEXT – Sri Lanka expects official foreign exchange reserves at the end of the year of US $ 4.0-4.5 billion, helped by inflows not counting a swap from China, said the director of the Central Bank for Economic Research, Chandranath Amarasekera.

“We believe that by the end of 2021, we will be able to maintain gross official reserves between US $ 4.0 billion and US $ 4.5 billion,” he told reporters.

“There’s a chance it’ll go higher. For that, we didn’t count China’s US $ 1.5 billion swap. “

Sri Lanka’s gross official reserves stood at US $ 4,018 million at the end of May, up from US $ 4,479 million in April.

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The reserves would equal about 3 months of imports, he said. The Chinese exchange would amount to another month, he said.

Central Bank Governor WD Lakshman said a $ 400 million swap with India is expected in August. Another swap of $ 250 million was expected from Bangladesh. Bangladeshi media referred to a US $ 200 million swap.

The People’s Bank of China swaps would be drawn down, he said. if the need arises

An allocation of $ 785 million of Special Drawing Rights, a “reserve asset” developed by the International Monetary Fund, is also expected to be made by August, Amarasekera said.

The central bank also plans to buy $ 700 million on the foreign exchange market.

“A country can move forward with flows of exports and foreign direct investment,” Amaraseskera said.

“Until then in 2021 and the first part of 2021, we are waiting for these other entries. “

Analysts based on classical economics have warned, however, that as long as liquidity is injected (money is printed through purchases of treasury bills) by an indexed central bank, which is then loaned by banks, there will be currency outflows greater than inflows.

To build up foreign exchange reserves, liquidity generated by central bank dollar purchases must be mopped up so that banks cannot lend the proceeds to the economy as a whole to generate consumption or investment.

On June 14, excess liquidity in the money markets stood at Rs 110 billion, which required more than US $ 500 million to mop it up and maintain an peg at 200 against the US dollar.

The central bank did not defend current transactions much, but mostly gave dollars for outflows from financial accounts. It is not clear whether the reserves were sold to Ceylon Petroleum Corporation.

However, as part of a long-standing commercialism, the CPC had been forced to borrow dollars and have unhedged dollar exposure whenever cash injections pressured the anchor, analysts said. .

In April, a month when remittances and exporter conversions were high, the government secured a US $ 500 million loan from the Development Bank of China, the central bank bought US $ 62 million on the steps.

The central bank has mainly injected liquidity by setting a cap rate for Treasury bill auctions and printing money to buy bonds and target a yield curve up to 12 months. (Colombo / June 14/2021)



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