Sri Lanka’s foreign reserves reached USD 6,517 million in March 2025, recovering from declines over the past few months and surpassing the recent high of USD 6,472 million recorded in October 2024, according to data from the Central Bank.
Amid a credit recovery in late 2024, the Central Bank injected large volumes of liquidity to suppress short-term interest rates. This raised concerns that banks might issue loans without adequate deposits, limiting the Central Bank’s ability to accumulate dollars and increasing the risk of having to sell reserves.
Following October’s peak, gross official reserves declined, especially after November, due to external debt payments and weak dollar collections in early 2025. However, by January, credit contracted, easing pressure on reserves.
To support the reserve position, the Central Bank executed swap arrangements, though these created liquidity from borrowed dollars — a practice previously linked to external instability. Direct domestic liquidity injections had been halted.
In March 2025, the Central Bank made a decisive move by purchasing USD 400 million from the market. As a result of the credit contraction, commercial banks were also able to increase their dollar holdings, contributing to the reserve buildup.
