CB expects to buy sizeable amount of dollars from forex market this year

• Dec. interventions turn negative causing US$ 22.5mn in net sales
• Hopes to purchase dollars from export proceeds and workers’ remittances

The Central Bank said it expects to purchase a sizeable amount of dollars this year to rebuild the country’s external reserves buffer after net interventions in December 2020 turned negative. After being a net purchaser of dollars from the foreign exchange market for several months, in December, the Central Bank’s inventions resulted in net sales of foreign currency amounting to US$ 22.5 million to defend extreme volatility of the rupee against the US dollar. 

In November, the Central Bank purchased US$ 2.40 million on net basis, continuing the deceleration since August. 

In July, the Central Bank purchased US$ 162.5 million net from the market, the highest for the year.
However, the Central Bank as the manager of the country’s foreign currency reserves said it expects to buy a sizeable amount of US dollars from the market. 

The Central Bank hopes to purchase dollars from export proceeds and workers’ remittances without putting pressure on the exchange rate to enable the maintenance of adequate level of reserves during the year. 

This implies that the Central Bank expects the recovery in exports to continue while the workers’ remittance momentum to persist through 2021. 

The Central Bank stressed that it would continue to intervene in the domestic foreign exchange market to reduce undue volatility in the exchange rate as well as to build up international reserves. 

Sri Lankan rupee depreciated by 2.6 percent against the dollar to Rs.187.39 in 2020.

Meanwhile, three-month forwards between the rupee and the US dollar were quoted weak last week at Rs.187.93 from Rs.185.22 in the previous week. Three-month forwards are an effective indicator of the currency’s strength or 
weakness in the future. 

Sri Lanka had a gross official reserve buffer of US$ 5.56 billion by end-November 2020, sufficient to cover 4.2 months of imports. 

From January through March this year, Sri Lanka has foreign currency obligations worth of US$ 882.3 million and US$ 4.7 billion from April to March 2022.