ECONMYNEXT – Sri Lankas foreign reserves were 6,243 million US dollars in September 2025, up 77 million US dollars from a month earlier, but reserve have been stagnant for 11 months, official data show.
Sri Lanka’s central bank has cut rates, amid warnings that flexible inflation targeting is a spurious statistical doctrine that rejects classical economics and a note-issue bank that has obligations to provide reserves cannot cut rates on a historical inflation statistic.
Sri Lankas foreign reserves hit 6,472 million US dollars in October 2024, and has failed to grow since then.
However net reserves have improved as monthly collections were used to settle the central bank’s reserve related liabilities take to suppress rates and create crises in the past.
The central bank seems to have paused inflationary open market operations for the moment, taking away the threat of an immediate default from the single policy rate.
However, the central bank collected 177 million US dollars in September, indicating that rupee was under upward pressure from some deflationary policy (coupons of its bond stock).
The current IMF program does not have a requirement to sell down the domestic assets of the central bank, which means it will not be able to collect reserves on a sustainable basis either.
Though the central bank may be able to meet the net international reserve target of the IMF (central banks settlements of RBI and IMF loans are around 100 million dollars a month), it is not clear whether a 7,000 billion dollar gross reserve number projected will be reached.
In the next IMF program, a requirement to sell down the central bank’s domestic assets stock will have to be imposed to collect more reserves, EN’s economic analyst Bellwether says.
Sri Lanka’s parliament has no control over the note-issue bank monopoly under ‘central bank’ independence.
The is also insidious depreciation of the rupee, amid record current account surpluses, making nonsense of claims made my neo-Mercantilists that currencies depreciate due to current account deficits and not flawed operating frameworks of note-issue banks.
(Colombo/Oct08/2025)
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