By Joe Leahy in Mumbai

Published: November 5 2009 16:04 | Last updated: November 5 2009 16:04

The Sri Lankan central bank is buying gold to diversify its reserves and smooth out periods of dollar volatility, Ajith Nivard Cabraal, central bank governor, said.

The move, which follows India’s gold purchase, is part of a policy change on the part of the bank.

“We did experience this huge currency volatility during the time of the crisis that gave us the feeling that we need to save in something more solid,” Mr Cabraal told the Financial Times. “Naturally gold crops up as the more logical item.”

He did not reveal the size of the purchases, which analysts said were about five tonnes, far below India’s 200-tonne purchase.

Mr Cabraal described the buying as “fairly substantial . . . We have not stopped accumulating it”.

Jonathan Spall, a director at Barclays Capital, said: that, while Sri Lanka might be a minnow in terms of the gold it may buy, it was another argument “in the case being built for gold”.

Additional reporting by Javier Blas in London
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