MONETABRIEF - Sri Lanka's foreign reserves grew 133 million dollars to 6,591 million dollars in the month of July after falling in the month before, helped by foreign purchases of rupee bonds.
In June foreign reserves fell 423 million dollars to 6,458 million dollars, despite 96.3 million dollars being purchased from banks as the central bank gave money to repay debt.
The central bank bought 348.6 million dollars in July, resisting exchange rate appreciation.
Some of the gross official reserves also included Treasury reserves built from budget support loans.
Sri Lanka ran into a currency crisis in early 2026 under flexible inflation targeting (cut rates claiming historical statistical inflation is low and inflate reserve money) and denying convertibility under exchange rate as the first line of defence (dishonoring notes).
The July rise came amid foreign purchases of rupee bonds.
The central bank purchased 348.6 million dollars from local fx markets in July, though reserves did not go up to the same level as debt is usually repaid.
Sales to the Treasury are not disclosed as yet.
The central bank resisted appreciating the currency in July, selectively deploying exchange rate policy against the rupee in what is a 'positive' external shock, after busting it when oil prices went up in a 'negative' external shock.
Concerns have been raised from early 2025, that under the IMF program phases starting 2025, there was no mechanism to 'safeguard' reserves as a quantitative performance criteria to kill liquidity permanently (falling ceiling on net credit to government) was removed.
Instead, when excess liquidity turns into credit and imports – as it must be when private credit is strong – authorities can escape accountability by dishonoring notes. (Colombo/Aug08/2026)