Sri Lanka bonds saw US$22.5 million in foreign selling despite rupee recovery, extending outflows to over US$51 million in three weeks.
Sri Lanka bonds faced another foreign selloff as investors sold around US$22.5 million worth of government securities despite the rupee’s recovery.
Foreign investors sold around US$22.5 million worth of Sri Lankan government securities in the week ended May 27, Central Bank data showed.
The outflow came despite easing fears over the recent depreciation of the local currency.
Foreigners sold a net Rs. 7,328 million, equal to US$22.55 million at an exchange rate of Rs. 325 to the US dollar, during the week.
With the latest weekly outflow, Sri Lanka has suffered a total net outflow of more than US$51 million over the past three consecutive weeks.
The outflows came amid sharp rupee depreciation.
The rupee fell to as low as 354 against the US dollar on May 20 before recovering and strengthening to the 334 level.
The currency had remained steady for more than three years before the latest depreciation.
The Central Bank cited higher oil and vehicle imports amid a lingering conflict in the Middle East as key reasons for the pressure.
The rupee has fallen 5.4 percent so far this year.
Data showed that Sri Lanka recorded a net outflow of around Rs. 14.3 billion in the first 21 weeks of this year.
That marked a reversal from the net inflow of Rs. 21,863 million recorded in the first six weeks.
Globally, investors remain cautious about economic growth due to the impact of the latest Middle East escalation.
Sri Lanka enjoyed a total inflow of around Rs. 71.5 billion, approximately US$234.4 million, into rupee bonds last year.
Analysts said Sri Lanka’s earlier deflationary policies helped attract inflows when imports were curtailed.
However, the country saw an uptick in inflation last month after fuel prices were increased by more than 35 percent.
The Central Bank raised its key monetary policy rate by 100 basis points early this week.
The move was aimed at curbing inflationary pressure stemming from higher demand.
Before this week’s rate hike, the Central Bank had kept its key policy rates steady since May last year.
This followed a total reduction of 825 basis points over 24 months since June 2023.
During that period, foreign investors had continued buying rupee bonds despite slight depreciation in the local currency.
