Sri Lanka forex reserves at $1896m in Dec 2022

COLOMBO: Sri Lanka ended 2022 with gross forex reserves of 1,896 million dollars, up from 1,804 million US dollars in November, amid high interest rates which has allowed the central bank to halt money printing.

Gross reserves are largely unchanged after rates were hiked in April and India stopped deferring import payments through the Asian Clearing Union shortly.

Sri Lanka began 2022 with gross reserves of $3.1 billion but continue to print money to maintain an artificially low policy rate, making it impossible to maintain an exchange rate peg at 200 to the US dollar.

Sri Lanka ran out of foreign reserves around March 2022 but was able to continue interventions and sterilize them with printed money triggering demand.

Without reserves to sell and sterilize with new money a pegged exchange rate can no longer create balance of payments deficits.

External stability has largely been reached though there is no full confidence among market participants yet in the peg at 360/370 to the US dollar.

Rates are also high with the expectation that sovereign bond holders and the International Monetary Fund statistics may drive a default of rupee Treasurie