Foreign investors sell Rs5.0bn Sri Lanka rupee bonds over week

ECONOMYNEXT – Foreign investors sold 5.1 billion rupees of bonds (38 million US dollars) in the week to August 12, 2015 continuing a trend that gathered pace after a rate cut in April 2015, official data show.

Data released by the Central Bank showed that rupee denominated Treasury bond holdings of foreign investors fell to 379.29 billion rupees from 384.41 billion rupees.

Foreign investors sold down rupee bonds steadily after a rate cut in April 15 when they held 465 billion rupees of securities.

Sri Lanka goes for parliamentary polls on August 17, and investors will be closely watching policy in the ensuing weeks.

Sri Lanka’s rupee has come under pressure from rising domestic credit and consumption fired by state deficit spending and low interest rates.

The deadly witches’ brew of loose fiscal and monetary policy that critics say has been the bane of the country since a central bank was created in 1951, driving the country into balance of payments trouble every few years followed by currency depreciation and hard landings.

The bonds sales so far total about 86 billion rupees (637 million dollars) or around the total that was pulled out of the country during a BOP crisis in 2008/2009. The country’s rupee bond market are deeper and more liquid now.

After the 2009 crisis the Central Bank allowed the rupee to strengthen, giving unexpected credibility to Sri Lanka’s soft-dollar peg and investors and there was no capital flight in the 2011/2012 crisis.

But following that crisis, the Central Bank collected reserves, partially sterilized the excess liquidity and did not allow the rupee to strengthen, undermining the credibility of the peg and encouraging capital flight this year. (Colombo/Aug15/2015)

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