Agencies/Colombo

Sri Lanka’s forex reserves had dropped $420mn to $6.466bn by end August 2015, down from $6.887bn in July, amid continued sterilised forex sales, official data shows.
Without $400mn swap from the Reserve Bank of India, foreign reserves are down 34% from a peak of $9.185bn in August 2014.
Last week Sri Lanka got another $1.1bn from the Reserve Bank of India, which would could help boost reserves closed to $7bn or above.
Sri Lanka’s foreign reserves dropped to $8.05bn in February 2012, after the Central Bank printed money to accommodate credit for oil subsidies and sterilise forex sales and keep interest rates down.
The current balance of payments crisis was generated by printing hundreds of billions of rupees to finance a budget deficit and sterilise foreign exchange sales to keep interest rates down.
Economists have pointed out that Sri Lanka’s central bank’s targeting of dual internal and external anchors are fundamentally flawed and needs urgent reform.
In the last monetary policy statement the Central Bank admitted that it was ‘concerned’ about credit growth pointing fingers at some sectors, though analysts say interest rates incompatible with the budget deficit in particular and credit generally is the key problem.
Sri Lanka failed to reform its Central Bank after the collapse of the similarly flawed neo-Mercantilist Bretton Woods system in the 1970s.
Swaps  however are borrowings, which have to be repaid.