Central Bank sells no dollars to defend rupee in February

• Instead buys US$ 23mn from domestic foreign exchange market
• In Jan. CB sold US$ 72mn to defend the rupee
• Collects US$ 28mn from worker remittances and US$ 8mn from export conversions in Feb.
• Sri Lanka’s foreign reserves were estimated at US$ 4.6bn by end-Feb.

Data showed that the Central Bank hasn’t sold a single dollar during February in defence of the rupee, although the currency came under pressure starting from the second week of January 2021. 

According to the latest data available through end-February, the Central Bank has bought US$ 23.42 million from the domestic foreign exchange market, in a change of course from January 2021 when it sold US$ 72.25 million when the rupee came under undue pressure due to excessive speculation. 

But the situation was brought under control as the Central Bank issued a slew of orders starting from the last week of January 2021. The banks were asked to sell 10 percent of worker remittances to the Central Bank under the incentive scheme of paying an additional Rs.2.0 per each dollar converted from 
worker remittances. 

Further, in February, exporters were also asked to repatriate export proceeds within 180 days of shipment and convert 25 percent of such earnings into rupees and sell 50 percent of the converted dollars to the Central Bank, within 14 days since the receipt of such foreign earnings. 

Earlier the Central Bank suspended the banks from purchasing Sri Lanka issued international sovereign bonds from the secondary market, as they already have more than two thirds of their foreign asset exposure to the State in ISBs and development bonds as shown by Fitch Ratings. 

The rupee opened a tad weaker on Monday morning at 197.50/198.50 against a dollar, from Rs.197.00/198.00 on Friday. 

But the Central Bank and the government maintain that the rupee should be trading around Rs.185.00 to the dollar reflective of the improving macro-economic fundamentals under the alternative economic policy path followed by 
the country. 

A fortnight ago the Central Bank in their commitment to build reserves through non-debt creating foreign inflows said they were expecting to add US$ 1.2 billion from exporter dollar conversion, collecting an average of US$ 125 million every month. 

In February, they collected US$ 28 million from worker remittances and US$ 8 million from export conversions as the latter rule came into effect only at the beginning of the third week of the month. 

By the end of February, Sri Lanka had US$ 4.6 billion foreign reserves, compared to US$ 4.8 billion a month ago. 

Last week, People’s Bank of China approved US$ 1.5 billion currency swap, which Sri Lanka expects to keep it as a stand-by facility without drawing down to add into the reserves.