Sri Lanka CenBank chief says reserve building is done carefully without pressurizing rupee

Sri Lanka’s Central Bank is building foreign currency reserves without exerting any pressure on the rupee, Governor Nandalal Weerasinghe said.

Sri Lanka’s Reserves have been growing at a slow pace and it has to build around US$8 billion by end of this year, as committed to the International Monetary Fund.

The latest number shows reserves have been stagnant around US$6.9 billion as of the end of September.

“We build reserves without creating volatility in the market,” Weerasinghe told a forum in Colombo titled ‘From Resilience to Sustainable Growth’, organized jointly by the Colombo Stock Exchange and Securities and Exchange Commission of Sri Lanka.

“We are allowing a smooth, gradual kind of a movement in the currency in line with the demand and supply in the market. That that has to reflect in the currency.”

Sri Lanka rupee plummeted in March 2022 when usable reserves hit rock bottom of around US$20 million. However, it has recovered from 360 against the US dollar and is currently trading around 330 levels.

“I don’t think we are building reserves and creating volatility in currency by building reserves. That’s why reserve building has been a little slow this year because of the large demand coming from petroleum bills,” the Governor said.

He said the Central Bank could have accumulated another US$2 billion if that amount was not spent on petroleum after the Middle Eastern conflict.

“So, we are a little careful in building our reserves…. We are not in a crisis situation for us to build as much as what we wanted and that happened during 2023. We are in a better position. That’s why we’re not in a hurry in building reserves and devaluing.”

The rupee has depreciated 6.7 percent so far this year against the U.S. dollar and the fall has been steep in May when the global oil prices sky rocketed amid uncertainty over supplies.

Source: Economy Next