16 April 2024 02:00 am
According to the data released last week, the Central Bank purchased US $ 715.1 million in March, which is the highest ever in the last decade. While the monetary watchdog sold none, the dollar purchase is a sharp increase from the roughly US $ 240 million purchased from the banking system in February, on a net basis.
In January, the Central Bank purchased US $ 245.3 million and thus, the March net absorptions brought the first three months’ purchases to US $ 1,199.0 million.
The Central Bank later last month said it would intervene in the foreign currency market to prevent excessive volatility, as the rupee has in recent times appreciated quite significantly after it plunged to its lowest levels in 2022.
For instance, the rupee gained in value by 8.5 percent year-to-date, to trade at Rs.298.51 to a dollar on April 10, on the close of trading for the traditional New Year holiday last week. This was on top of the roughly 12 percent gain in the rupee in 2023.
As a result, the rupee has also emerged as the best-performing currency in the emerging markets in the first quarter.
These large purchases have been possible as tourism has once again returned to become a bright spot in the country’s economy, while the remittances have been pretty strong.
In the first quarter, the two generated US $ 1,025.9 million and US $ 1,536.1 million, respectively.
Besides, Sri Lanka now doesn’t pay most of its foreign currency loans and personal vehicle imports have remained suspended for four years now.
These things have provided much breathing room for the officials to rebuild the reserves, which depleted to near zero levels two years ago, to a level just shy of US $ 5.0 billion.
Sri Lanka fell into an economic crisis in 2022, after running out of foreign currency to bring down fuel, gas and most other essential items, as tourism trade was nearly decimated in the preceding years, due to the pandemic while the remittances reached a low while the exports were less than potential.