Sri Lanka central bank forex purchase in September 2025 reached 177.3 million dollars, even as the country reported its first current account deficit of the year. This development has raised questions about monetary policy, currency stability and reserve management.
Sri Lanka central bank forex purchase rises despite deficit
Sri Lanka central bank forex purchase activities increased notably in September 2025, with 177.3 million dollars bought from the market, according to official data. This occurred during the first recorded current account deficit of the year. Despite the deficit, the central bank maintained its buying strategy, signaling continued efforts to build reserves while managing exchange rate pressures.
Until August 2025, the external current account remained in surplus, reaching a revised total of 1,857 million dollars. From March to August alone, the surplus stood at 1,400 million dollars. However, during this period, the Sri Lanka rupee depreciated from 295.5 to 302.45 against the US dollar as the central bank purchased foreign currency, creating excess liquidity through unsterilized interventions.
In September, the rupee continued to weaken while the current account shifted into deficit. Despite this, Sri Lanka central bank forex purchase operations persisted, raising further debate on the impact of monetary policy on currency movements. Economists note that a current account deficit typically indicates reliance on financial inflows or delayed payments to bridge external gaps, while a surplus suggests either capital outflows or reserve accumulation.
Criticism has emerged over modern central banking practices, with analysts arguing that excessive discretion and limited accountability contribute to monetary instability. Historically, classical monetary laws imposed stricter rules on central banks, preventing unchecked interventions. Economic analysts emphasize that exchange controls and flexible exchange rates have often been used to conceal policy errors and restrict economic freedoms.
The central bank has currently suspended most inflationary operations, apart from buy-sell dollar swaps. Coupon payments on its bond portfolio are now considered deflationary, potentially supporting an overall balance of payments surplus, depending on the impact of currency swaps. Under deflationary conditions, the central bank has the option to influence the currency either toward appreciation or depreciation through its forex operations.
Additionally, the central bank has sold part of its accumulated reserves to the Treasury for debt servicing, contrasting past practices where external borrowing was used for repayments. Selling dollars at a higher price than the purchase rate can also have a deflationary effect. While inflation remains below the target, analysts warn that if future IMF programs require selling Treasury bonds or restrict Treasury access to dollars, Sri Lanka may face heightened default risks.
The ongoing debate highlights a broader issue of monetary independence, exchange rate strategy and transparency. With Sri Lanka central bank forex purchase decisions now under scrutiny, policymakers face increasing pressure to balance reserve accumulation, currency stability and economic accountability.