Sri Lanka rupee bonds saw over US$4 million in foreign outflows as currency pressure, inflation fears and Middle East tensions weigh on investors.
Sri Lanka rupee bonds saw foreign investors sell more than US$4 million worth of government securities in the week ending May 7, Central Bank data showed.
The selloff came amid renewed depreciation pressure on the local currency and growing caution among global investors over economic growth due to the impact of the latest Middle East war.
Foreign investors sold a net Rs. 1,280 million, equal to about US$4.06 million at an exchange rate of Rs. 315 to the dollar, during the week.
With the latest outflow, foreign investment into rupee bonds stood at Rs. 1,366 million during the first 18 weeks of this year.
That figure has fallen sharply from Rs. 21,863 million recorded during the first six weeks of the year, according to the data.
Last year, Sri Lanka attracted total inflows of around Rs. 71.5 billion, or approximately US$234.4 million, into rupee bonds.
Analysts said Sri Lanka’s deflationary policies helped attract inflows earlier, particularly as imports remained curtailed.
However, the country recorded a sharp rise in inflation last month after fuel prices were increased by more than 35 percent.
Analysts say expectations of higher inflation have now placed fresh pressure on the Central Bank’s monetary policy.
Sri Lanka’s Central Bank has kept its key policy rates steady since May last year, after reducing them by 825 basis points over 24 months from June 2023.
Despite depreciation in the local currency, foreign investors had continued buying rupee bonds during that period.
The latest foreign selloff now signals renewed caution as investors weigh currency weakness, inflation pressure, fuel price shocks, and global uncertainty linked to the Middle East conflict.
SOURCE :- ECONOMY NEXT
