Colombo, Sri Lanka – The Central Bank of Sri Lanka (CBSL) sold a record USD 223 million to the domestic foreign exchange market in May, marking its largest monthly intervention in recent years as authorities moved to stabilize the Sri Lankan rupee amid growing economic uncertainty linked to the escalating Middle East crisis.

The intervention comes as global oil prices remain volatile following geopolitical tensions in the Middle East, increasing pressure on energy-importing nations such as Sri Lanka. Higher fuel costs have raised concerns over inflation, foreign exchange demand, and the country’s external sector performance.

According to market analysts, the Central Bank’s dollar sales were aimed at preventing excessive fluctuations in the exchange rate and ensuring adequate liquidity in the foreign exchange market. The move reflects the regulator’s commitment to maintaining monetary and financial stability while supporting economic recovery.

Sri Lanka has made significant progress in rebuilding its foreign reserves since the economic crisis of 2022, supported by strong tourism earnings, worker remittances, export growth, and the ongoing reform programme backed by the International Monetary Fund (IMF). This improved reserve position has provided the Central Bank with greater flexibility to intervene when necessary.

Economists note that while such interventions can help cushion short-term volatility, prolonged external shocks could place additional strain on reserves if global energy prices continue to rise. However, many believe that Sri Lanka is currently in a stronger position to withstand external pressures than it was just a few years ago.

The rupee has remained relatively stable in recent months despite global uncertainties, reflecting improved investor confidence and stronger macroeconomic fundamentals. Market participants will continue to monitor developments in the Middle East and their potential impact on global commodity prices and Sri Lanka’s balance of payments.

The record intervention underscores the Central Bank’s proactive approach to safeguarding currency stability during a period of heightened geopolitical risk, while balancing the need to preserve foreign reserves and support economic growth.