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Sri Lanka gross foreign reserves rise to 3.5 year high in April
  • Gross official reserves in Sri Lanka rose by $478 million in April 2024 to $5.438 billion due to the central bank's deflationary policy.


Sri Lanka's gross official reserves surged by $478 million in April 2024, reaching $5.438 billion, bolstered by the central bank's deflationary policy aimed at fostering a balance of payments surplus. Despite a brief appreciation of the rupee in March and early April, which led to importer bill delays and increased reserve collections, pressure on the exchange rate persisted due to oversold positions. The central bank employed moral suasion and dollar sales to stabilize the exchange rate. With private credit remaining weak, reserves were easily amassed, ensuring stability in the external sector. Although the central bank holds $3.2 billion in swaps, exposure to exchange rate risks persists, mitigated by settling other loans, including those to the IMF and India, which has improved the net foreign assets position. China's stipulation of reserve thresholds safeguards against further losses. Net international reserves have dramatically improved, standing at a negative $404 million by December 2023, surpassing IMF targets, attributed to cautious rate adjustments and boosted confidence. While the economy shows signs of recovery amid monetary stability and slightly elevated interest rates to support reserve accumulation, steep short-term currency appreciations fuel speculative behaviors, with past experiences indicating potential unraveling of the external sector post-rate cuts. As May approaches, historical patterns suggest impending currency pressures following April liquidity excesses.

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