Currency pact with India to boost Sri Lanka’s reserves

Sri Lanka’s official reserves are set to receive a boost by the currency swap arrangement with India, signed during Prime Minister Narendra Modi’s visit, the country’s Central Bank said today.

  “The official reserves are projected to strengthen further with the proceeds pending from the currency swap arrangement between Sri Lanka and India and other identified regular investment inflows to a level of official reserves comfortable for supporting the exchange rate stability in the immediate future,” Central Bank of Sri Lanka said in a statement.

During his visit to Sri Lanka last month, Prime Minister Modi had pledged USD 1.5 billion in financial assistance on a currency swap arrangement.

The Reserve Bank of India and Central Bank of Sri Lanka  agreement will help Sri Lanka keep its Rupee stable.

The Sri Lankan Rupee has been under pressure since early January and has fell around 1.5 per cent so far this year despite Central Bank action to sell dollars to defend it.

The bank also announced today the cutting of policy interest rates for the first time in 16 months.

The deposit facility Rate and the lending facility rate  of the Central Bank are reduced to 6 per cent and 7. 50 per cent, respectively.

“Current behaviour of market interest rates is viewed to be inconsistent with the continued low inflation and investments needed to address concerns on economic growth for the year.

“Inflation is projected to remain at low mid-single digit level in 2015,” the statement added.

The Central Bank said the inflation, on a year-on-year basis, declined to 0.1 per cent in March 2015 from 0.6 per cent in February 2015.  The annual average inflation also declined to 2.5 per cent from 2.9 per cent recorded in the previous month.

PTI