Monday Feb 02, 2026
Monday Feb 02, 2026
Monday, 2 February 2026 00:24 - - {{hitsCtrl.values.hits}}
Net foreign exchange purchases by the Central Bank of Sri Lanka (CBSL) during 2025 generated a sustained surplus of rupee liquidity in the domestic money market, while lifting gross official reserves to their highest post-crisis level, according to the Market Operations Report – December 2025.
On a value-date basis, the CBSL recorded net foreign exchange purchases of $ 1.99 billion during the year. The report states that “foreign exchange purchases and swap transactions contributed to injecting rupee liquidity amounting to approximately Rs. 788.9 billion, on a net basis.”
The CBSL said it intervened in the domestic foreign exchange market both to accumulate reserves and to smooth excessive volatility. “The CBSL intervened in the domestic foreign exchange market to augment foreign reserves during opportune times, while curtailing excessive volatility in the exchange rate,” the report noted.
During the second half of 2025, the CBSL purchased $ 1,027.0 million on a value-date basis, while supplying $ 44.7 million to the market, resulting in net purchases of $ 982.3 million. For the full year, the CBSL absorbed $ 2,100.4 million and supplied $ 108.0 million, resulting in net purchases of $ 1,992.4 million.
As a result, gross official reserves increased to $ 6.8 billion by end-2025, including the People’s Bank of China swap facility equivalent to $ 1.4 billion. The report described this as “the highest level of gross official reserves recorded during the post-crisis period.”
The liquidity injected through foreign exchange operations kept Central Bank liquidity in surplus throughout the year. As at end-2025, the surplus stood at Rs. 175.2 billion, compared to Rs. 168.1 billion at end-2024.
However, the report noted that liquidity was partly absorbed through “net foreign loan repayments by the Government amounting to Rs. 356.1 billion, net currency withdrawals of around Rs. 210.2 billion, and coupon payments to the CBSL of around Rs. 189.5 billion on account of its holdings of Treasury Bonds.”
Despite the persistent surplus, the CBSL did not conduct open market operations during 2025.
“Similar to the first half of the year, the CBSL did not intervene in the domestic money market through its Open Market Operations (OMOs), even during the second half of 2025,” the report said.
Short-term money market rates moved above the Overnight Policy Rate from mid-July 2025, reflecting tighter conditions and uneven liquidity distribution. The CBSL stated that “as this deviation was considered tolerable, the CBSL refrained from providing additional liquidity to tame the uptick in short-term rates,” with the Average Weighted Call Money Rate realigning with the Policy Rate in January 2026.
On the exchange rate, the rupee depreciated by 5.6% against the US dollar in 2025.
The report said the depreciation reflected “import-related demand, amidst a notable rise in motor vehicle imports,” alongside dividend and infrastructure-related outflows, while inflows from workers’ remittances and export proceeds enabled continued foreign exchange purchases by the CBSL.
