Sri Lanka has spent US$ 990 million of reserves on imports since October 2021. As per official reports, this has resulted in a rapid deterioration of remaining reserves, despite reduced interventions in February 2022.
Increased imports were seen in the last quarter of 2021, as interventions were made and money was printed to enforce a policy rate.
With $185.34 million sold and $162.34 million bought via a surrender requirement, Sri Lanka’s net interventions were trimmed to $23 million in February 2022.
Since October, when interventions began, net reserves for imports have totaled $990 million.
Meanwhile, the rupee was floated in March.
A float end intervention and the requirement to print money to maintain policy rates allowing inflows to match outflows. However, a surrender requirement is a hurdle for a floating regime to become established, analysts have warned.
Economist W. A. Wijewardene, the IMF, and other analysts have called for rate hikes to end money printing for the float to work.
In a scenario where the float fails to work, economic problems faced when the dollar was at Rs. 203 will resurface at a lower level.
The rupee has fallen to 275 to the US dollar, but forex shortages still persist. Data also showed more money has been printed.
No.820, Mount Cresent,Malabe,Sri Lanka