ECONOMYNEXT – Importers of vehicles into Sri Lanka had opened 350 million US dollars of letters of credit up to now, but the exchange rate is stable, President Anura Kumara Dissanayake said.
“Even though vehicle imports were opened, the US dollar is still stable at 300 rupees,” President Dissanayake said at an election rally in Ratnapura, Wednesday.
“That is because we have maintained economic stability.”
Sri Lanka’s central bank has maintained largely deflationary policy since September 2022, though a large volume of money was printed during the last quarter of 2024 to operated an abundant reserve regime.
Analysts have warned that the central bank tends to print money through open market operations to suppress rates just as private credit recovers to push down interbank rates, pushing up excess liquidity which is then become credit and imports.
Under flexible inflation targeting (a statistical framework based on past inflation rejecting classical economics), currency crises have been triggered in 2011/12, 2025/16, 2018, 2020/22.
Sri Lanka’s central bank also has a high inflation target, which has so far been missed, providing monetary stability.
In 2025 salaries of state workers have also been hiked, pushing up government cash requirements.
The interest bill can generally be rollover as paper as long as the central bank does not use a ‘domestic buffer’ not to roll-over maturing debt as paper.
Analysts have warned that as long as there is a central bank with a policy rate, domestic buffers cannot be operated to keep rates down. A central bank with a policy rate has a limited ability to act as ‘banker to the government’ including in supplying foreign exchange. (Colombo/Apr24/20250
