Sri Lanka central bank buys US$401mn from banks in March 2025
- CNL Reporter
- April 7, 2025
- Banking and Financial
- Central Bank
- 0 Comments
Sri Lanka’s central bank bought 401.9 million US dollars in March 2025, after weak collections in the previous two months amid a credit spike, official data shows.
The central bank has bought 484 million US dollars in the first quarter of 2025.Under the current International Monetary Fund agreement Sri Lanka has to collect around 200 million dollars a month (2.5 billion US dollars) to build 900 million US dollars in reserves and repay debt and interest.
If the central bank is to collect the reserves it has to run deflationary policy as any dollars bought by the central bank (unlike the Treasury) leads to new money being created.Unless the new money is mopped up, the money leads leads to a fall in short term rates and will be used by banks for credit which will then hit forex markets later, leading to reserve losses and depreciation if the currency is not defended.
The central bank printed money int the last quarter of 2024 to suppress overnight rates and lose some reserves, but the overnight rate has since hovered around 8.00 percent which is the ‘signalled’ single policy rate. However it now higher than the floor rate
