Sri Lanka’s foreign reserves dip in June amid fluctuating Central Bank market interventions

Sri Lanka’s gross official reserves fell by US$ 431 million in June 2026, dropping to a provisional US$ 6,450 million from US$6,881 million at the end of May 2026, according to the Central Bank of Sri Lanka’s (CBSL).

 The reserve stock continues to include proceeds from the conditional People›s Bank of China (PBOC) swap arrangement, which remain subject to conditionalities on usability. 

The Central Bank’s most recent breakdown of foreign currency liquidity, compiled as at end-May 2026, shows predetermined short-term net drains on foreign currency assets, including outflows tied to the international sovereign bond (ISB) restructuring terms agreed with bondholders in December 2024, continuing to weigh on the reserve position alongside broader domestic and external pressures.

A closer look at the CBSL’s foreign exchange interventions shows a marked turnaround in liquidity management between the two months. In May 2026, the Central Bank sold a substantial US$ 223.3 million while purchasing just US$ 12.0 million to defend the domestic currency, resulting in a heavy net liquidity drain from the banking system. 

This shifted in June 2026, as the Central Bank drew on improved market liquidity to purchase US$96.3 million while limiting sales to US$ 25.8 million, resulting in a net absorption of US$ 71 million on a value-date basis. The scale of May’s intervention, together with ongoing debt servicing obligations, appears to have had a lagged effect on the aggregate reserve figure by the end of June.

Several structural factors weighed on foreign currency inflows during the month. Tourism earnings, a key pillar of external sector resilience, eased to US$ 151.1 million in June from US$ 155.7 million in May, amid a decline in monthly arrivals from 145,745 to 124,551. Workers’ remittances fell to US$ 695.0 million in June from a high base of US$ 847.0 million in May, though this remained 23.2 per cent higher than the US$ 635.7 million recorded in June 2025. 

These moves, combined with a widening trade gap as import expenditure grew far faster than exports, pushed the merchandise trade deficit to US$ 4,661 million during the first five months of the year, from US$ 2,730 million a year earlier, keeping underlying pressure on the exchange rate.

The interbank foreign exchange market reflected these tighter conditions, with average daily interbank spot volumes falling from US$ 79.48 million in the week ending 03 July to US$ 53.79 million in the week ending 10 July. The rupee recorded a year-to-date depreciation of 7.9 per cent against the US dollar as of 10 July, with its commercial bank average middle rate at Rs. 335.90. Forward market activity also eased, with outstanding forward volumes at US$ 661.09 July, down from US$ 671.78 million a week earlier, as crude oil prices climbed following US airstrikes on Iran and renewed sanctions, with Brent and WTI benchmarks rising by US$ 4.33 and US$ 3.26 per barrel respectively over the week.