Sri Lanka CB purchased $177.3 million from commercial banks in September 2025, raising total foreign currency purchases this year to $1.4 billion. This marks a notable increase from $142.5 million in August and reflects ongoing liquidity management by the central bank.
Sri Lanka CB boosts dollar purchases to $177M in September, lifting total buys to $1.4B in 2025
Sri Lanka CB increased its foreign currency purchases from commercial banks in September 2025, buying $177.3 million, up from $142.5 million in August. The cumulative amount purchased so far this year stands at $1,415.9 million. The data indicates that the central bank continues to build liquidity through unsterilized purchases to influence money market conditions and manage pressure on the rupee.
In late 2024, the central bank lost its ability to buy foreign currency after printing nearly 100 billion rupees through inflationary open market operations. That policy shift, aimed at controlling short-term interest rates, triggered a sharp drop in reserves and public criticism. Since then, the monetary authority has resumed foreign exchange purchases, often using dollar-rupee buy-sell swaps, to maintain downward pressure on the currency.
While these purchases have supported foreign exchange liquidity, analysts note that without offsetting operations, such injections can eventually fuel depreciation. The central bank has also sold more than $700 million of these purchased dollars to the Treasury as of mid-year, helping to reduce excess liquidity and balance interest rates.
Market observers point out that the ability of Sri Lanka CB to buy and sell foreign currency directly affects the rupee’s stability. If liquidity injections from purchases are not absorbed or reversed, the rupee can weaken when credit growth leads to increased imports. Analysts say these unsterilized transactions currently play a critical role in stabilizing money markets and easing financing pressures.
In the absence of inflationary open market operations, the monetary authority is relying on foreign exchange transactions to influence liquidity. Critics argue that this framework lacks transparency and does not give parliament sufficient oversight. Some economists are also calling for a lower inflation target to reduce pressure on the currency and prevent another debt crisis.
On October 2 and 3, banks borrowed 21 billion rupees and 6.17 billion rupees overnight at the Lombard rate of 8.25 percent, above the single policy rate of 7.75 percent, reflecting a scarce reserve regime. Analysts warn that if printing resumes to target the policy rate too aggressively, Sri Lanka CB may lose its capacity to accumulate reserves, raising the risk of a future default.
Looking ahead, the bank’s foreign exchange operations will remain central to its monetary policy. Maintaining a balance between liquidity support and rupee stability will be crucial, especially as the country manages debt repayments through 2028. A disciplined approach to reserve management and monetary tightening will help build resilience and reduce vulnerability to external shocks.