Foreign investors purchased a net Rs. 1.35 billion in Sri Lankan government bonds during the week ending 14 August, marking nine consecutive weeks of overseas capital inflows into the local debt market.
Official Central Bank data confirms that the latest purchases pushed cumulative foreign investment in government securities to Rs. 72.9 billion since mid-June, bringing total foreign holdings in Treasury bonds to Rs. 194.2 billion.
Currency stability and debt inflows
The sustained interest from international buyers follows a period of stabilization for the domestic currency, which had previously experienced heightened volatility.
In May, the Sri Lankan rupee hit a near three year low against the United States dollar due to increased expenditure on oil and vehicle imports alongside heightened Middle Eastern geopolitical tension.
The Central Bank intervened by raising key interest rates by 100 basis points in May to curb demand-driven inflationary pressures, which helped steady the exchange rate and restore investor confidence despite a net currency depreciation of 7.1 percent over the course of the year.
Macroeconomic performance
Market analysts attribute the steady capital inflows to past deflationary policies that successfully curtailed non-essential imports, allowing total foreign bond purchases to reach Rs. 52.9 billion so far this year.
Although recent energy price adjustments contributed to an uptick in inflation over the past three months, local fuel prices stabilized following reductions made in late June.
Monetary authorities noted that while total foreign holdings reached record levels in the latest weekly economic indicator report, overall debt figures remain subject to daily market fluctuations.
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