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Sri Lanka built up foreign reserves as a buffer to be used during tough times, Central Bank Governor Nivard Cabraal said, as reserves came off record highs seen in August 2011.
"We have thought through carefully and built up are reserves carefully in order to ensure that we are able to meet challenges as and when it occurs," Cabraal told a forum of non-bank lenders in Colombo.
"Sometimes people talk about reserves lost. I think many of those people have not been told about the story of the ant which used to gather food for the winter.
"The food was put in place in order to ensure that he would be able to consume it at the time that it is needed."
From the time a balance of payments crisis ended in May 2009 with a float of the rupee in April, Sri Lanka has been building up reserves helped low credit growth and strong external borrowings.
By August 2011, Sri Lanka's reserves peaked at 8,055 million dollars shortly after selling a bond in international markets.
Cabraal said the central bank had behaved like the proverbial ant in Aesop's tale in hoarding reserves.
"In the same way the central bank has taken steps to ensure that we bring in additional reserves more that what we needed at the good time," he said.
"So that during the tough times - we have foreseen some of the difficult times the world will face from about September onwards - and we are ready for it. That is what we have done and that is what we should do."
Sri Lanka has a monetary system based on a Bretton Woods type soft-dollar peg, where an exchange rate and an interest rate are targeted at the same time, causing frequent balance of payments crises.
Sri Lanka's forex reserves topped eight billion dollars in August 2011 but have since fallen amid defence of a dollar peg. By end September foreign reserves had fallen to around 7.2 billion dollars.
In October and November reserves losses were much lower, an analyst who studies the central bank closely said.
In late November the rupee was devalued from 110.20 to the dollar in the spot market to 113.90 rupees as part of a budget policy statement, which took markets by surprise.
Sri Lanka's interest rates have also edged up over the past three months as sterilization of dollar sales by liquidity injections become less than 100 percent making the monetary system tighten.
http://lbo.lk/fullstory.php?nid=134137047
"We have thought through carefully and built up are reserves carefully in order to ensure that we are able to meet challenges as and when it occurs," Cabraal told a forum of non-bank lenders in Colombo.
"Sometimes people talk about reserves lost. I think many of those people have not been told about the story of the ant which used to gather food for the winter.
"The food was put in place in order to ensure that he would be able to consume it at the time that it is needed."
From the time a balance of payments crisis ended in May 2009 with a float of the rupee in April, Sri Lanka has been building up reserves helped low credit growth and strong external borrowings.
By August 2011, Sri Lanka's reserves peaked at 8,055 million dollars shortly after selling a bond in international markets.
Cabraal said the central bank had behaved like the proverbial ant in Aesop's tale in hoarding reserves.
"In the same way the central bank has taken steps to ensure that we bring in additional reserves more that what we needed at the good time," he said.
"So that during the tough times - we have foreseen some of the difficult times the world will face from about September onwards - and we are ready for it. That is what we have done and that is what we should do."
Sri Lanka has a monetary system based on a Bretton Woods type soft-dollar peg, where an exchange rate and an interest rate are targeted at the same time, causing frequent balance of payments crises.
Sri Lanka's forex reserves topped eight billion dollars in August 2011 but have since fallen amid defence of a dollar peg. By end September foreign reserves had fallen to around 7.2 billion dollars.
In October and November reserves losses were much lower, an analyst who studies the central bank closely said.
In late November the rupee was devalued from 110.20 to the dollar in the spot market to 113.90 rupees as part of a budget policy statement, which took markets by surprise.
Sri Lanka's interest rates have also edged up over the past three months as sterilization of dollar sales by liquidity injections become less than 100 percent making the monetary system tighten.
http://lbo.lk/fullstory.php?nid=134137047
