Sri Lanka forex reserves increased in September 2025 as the Central Bank of Sri Lanka (CBSL) purchased $177.3 million from commercial banks. The move, higher than August’s $142.5 million, reflects a continued effort to strengthen external buffers despite concerns over liquidity and inflationary pressures.
Sri Lanka forex reserves strengthen after central bank purchases $177.3mn from banks in September
Sri Lanka forex markets saw renewed central bank activity in September 2025, with the Central Bank of Sri Lanka (CBSL) purchasing $177.3 million from commercial banks, official data revealed. The figure marked a steady increase from August’s $142.5 million, bringing the year-to-date total to $1.42 billion in dollar purchases.
The central bank’s renewed accumulation of dollars comes after a period in late 2024 when it struggled to build reserves due to inflationary open market operations that injected nearly Rs 100 billion into the financial system. Analysts said the excess liquidity from those actions weakened the bank’s ability to collect foreign exchange and triggered pressure on the rupee.
However, with inflationary operations temporarily paused, the CBSL’s renewed purchases have provided moderate support to Sri Lanka forex reserves. Dealers noted that maintaining liquidity while buying foreign currency through dollar–rupee swaps can exert downward pressure on the rupee if not managed prudently.
In an ironic twist, the rupee has faced depreciation despite the economy recording a $2 billion current account surplus. Economists attribute this to flawed monetary frameworks and politically driven policy rates that ignore underlying reserve dynamics. The CBSL’s unsterilized purchases of dollars — where liquidity is not absorbed from the banking system — can inflate domestic money supply and lead to eventual depreciation if not counterbalanced by sales.
Up to June 2025, the central bank had sold over $700 million of its earlier purchases to the Treasury to meet debt obligations, helping curb excess liquidity and temporarily stabilizing market interest rates. Analysts suggest that unsterilized sales can ease inflationary pressure by reducing surplus liquidity, though such transactions are not always publicly disclosed.
Experts emphasize that without strict deflationary policies — such as mopping up excess liquidity or restraining domestic asset growth — Sri Lanka cannot build durable reserves. The ongoing IMF-supported program, currently under renegotiation, lacks specific clauses requiring the CBSL to reduce its domestic asset holdings, raising concerns about continued inflationary bias.
As of early October, banks borrowed Rs 21 billion overnight at the ceiling Lombard rate of 8.25 percent, indicating tight liquidity conditions. Analysts warn that if money printing resumes to maintain an artificial policy rate, the central bank’s capacity to accumulate reserves could once again be compromised, heightening the risk of a future balance of payments crisis.
With exchange controls still in place and inflationary swaps under scrutiny, economists caution that sustainable reserve growth will depend on disciplined monetary operations and transparency. Until Sri Lanka regains international market access — projected around 2028 — maintaining Sri Lanka forex stability remains critical for meeting external debt repayments and restoring investor confidence.