Foreign inflows into Sri Lanka’s government securities have shown resilience, remaining steady in the week ending October 23, despite a significant drop from the previous week. According to data from the Central Bank, the island nation experienced an inflow of just 1 million rupees (approximately $3,390) into its government securities, a stark contrast to the prior week’s inflow of 495 million rupees. The total value of government securities held by foreign investors remained stable at 51,143 million rupees.
Market analysts attribute the steady inflow to excess liquidity in the market, along with growing speculation regarding potential interest rate cuts by the Central Bank before the year’s end. A currency dealer noted that this speculation, coupled with the prevailing excess liquidity, signals a potential decrease in the future returns on government securities.
Sri Lanka’s recent deflationary policies have also played a role in maintaining foreign interest in its securities, coinciding with lower market lending rates and a stronger rupee. The country enjoyed a peaceful presidential election, which saw Anura Kumara Dissanayake from the Marxist Janatha Vimukthi Peramuna (JVP) elected as president for a five-year term, further stabilizing the political landscape.
Despite these positive trends, Sri Lanka has faced significant foreign outflows in recent months, with 66 percent, or 78.1 billion rupees, worth of government securities exiting the country in the first nine months of this year. This trend underscores the ongoing challenges the nation faces in attracting sustainable foreign investment in its financial markets.
