Goldilocks and 4% return from reserves

The investment of dollar reserves maintained by the Central Bank earned US$ 220 million in 2012, a return of 4 percent, Central Bank estimates showed.

According to estimates, gross official reserves amounted to US$ 6.8 billion as at end 2012, enough to finance 4.4 months of imports.

As at end 2011 reserves had amounted to US$ 5.96 billion generating returns amounting to US$ 430 million at a yield of 6.6 percent. Reserves were at their highest at US$ 8.1 billion that June before the Central Bank began selling down reserves to maintain a stable exchange rate.

Reserves earned US$ 341 million in 2010 at 6.2 percent.

Last year, the Central Bank drew criticism for investing reserves in ‘junk’ Greek bonds. This investment amounted to 0.6 percent of the total portfolio, a senior official told The Island Financial Review.

With the 4 percent return in 2012, the Central Bank of Sri Lanka had outperformed many of its peers in an uncertain global economy, Central Bank Governor Ajith Nivard Cabraal said earlier this week.

The average yield on benchmark two year US Treasuries was 0.7 percent in 2012.

Returns earned from reserves during 2010 to 2012 amounted to nearly US$ 1 billion.

Cabraal said the Central Bank was working hard to find the right investment mix and was keen not to build up too many reserves, or too little.

"Just like Goldilocks who found the papa bear’s bed too rough and the mama bear’s bed too soft but baby bear’s bed just about right, we too have a comfortable reserve position that is just about right," Cabraal said, unveiling the ‘Road Map for Monetary and Financial Sector Policies for 2013 and Beyond’.

"During the year our foreign reserve accumulation was prudent, not too excessive. We did not want to go into a situation where we had 7 or 8 months of reserves. At the same time it was not too slow either. Sometimes it is not easy to find the exact level of comfort that is needed but I think we have got the right balance. Not too much, not too little. We will be looking at it carefully and moving on we will ensure that Goldilocks is comfortable," Cabraal said.

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