July 17 (ECONOMYNEXT) Sri Lanka's central bank bought 136 million dollars of foreign exchange from commercial bank and there were no sales in June, official data showed.
Sri Lanka's forex reserves rose 193 million dollars to 6,953 million dollars in June.
In May the central bank bought 183.4 million dollars from banks and sold 35 million dollars.
The data do not track official flows.
In May the central bank brought down its Treasury bill stock from around 250 billion rupees to 211 billion, sterilizing the purchases. In June the bill stock was further brought down to around 190 million dollars.
However in July excess liquidity has been allowed to remain in money markets and the Central Bank's Treasury bill stock has been static. Any rupee proceeds of dollars purchases sloshing around in the banking system can be loaned out and end up in forex markets.
The central bank typically generates balance of payments pressure by holding down rates with printed money when credit demand rises, triggering excess credit and imports, which outstrip dollar inflows.
Private credit slowed sharply in April, the budget deficit is also improving, but state energy entities are borrowing. Borrowings of state energy entities end up one-to-one in forex markets.
Sri Lanka's official reserve statistic is made up of dollars purchased by the central bank against rupees which go to its balance sheet and also dollars in Treasury accounts.