• 1: Sri Lanka currently has sufficient foreign reserves
• 2: IMF targets $ 2 b in net market purchases by year-end.
• 3: Rupee appreciates slightly amid high inflows and low demand.

Central Bank of Sri Lanka (CBSL) will not cash the $ 1.4 billion Chinese swap and will use it as a standby arrangement as Sri Lanka has sufficient foreign reserves, an official of CBSL said.

Speaking at the Committee on Public Finance (COPF) on Tuesday (3), CBSL International Operations Department Director Dr. Sumila Wanaguru said that the People’s Bank of China swap worth $ 1.4 billion is not cashable at the moment as some conditions are not met, but will maintain it as a standby arrangement.

One of the main conditions of cashing the PBOC swap was to have three months of import cover in the reserves and according to Wanaguru, as of the end of July, Sri Lanka has 3.8 months of import cover in the reserves with $ 5,652 million.

Moreover, she said that the daily average depth of the foreign exchange market in Sri Lanka is about $ 75-80 million, while the liquidity reaches to low of $ 30-40 million and a high of $ 100 million on some days.

She said that the International Monetary Fund (IMF) wants CBSL to have $ 2 billion in net purchases from the market by the end of 2024 and that the CBSL had net purchases of $ 1.87 billion by the end of July.

Wanaguru said that the rupee is slightly appreciating at the moment due to high inflows and low demand prevailing at the moment.

She added that the CBSL lets the exchange rate fluctuate to control inflation but will intervene from time to time to build up reserves as well as curtail sharp depreciation as the CBSL aims at maintaining a less volatile currency.

During the year up to 30 August, the Sri Lanka rupee appreciated against the US dollar by 7.9%.