ECONOMYENXT – Sales of rupee denominated gilts by foreign investors eased in the week to August 19, 2015 official data showed, as general elections returned the ruling party to power.
Rupee securities holdings by foreign investors climbed slightly to 380.22 billion rupees from 379.29 billion rupees after falling steadily since a rate cut in April, Central Bank data showed.
Until the last quarter of 2014, foreign inflows into the rupee bond market have always met the outflows, with a ceiling of 10 percent of total outstanding bonds keeping demand strong.
But from September 2014 there was a bout of foreign selling ahead of a presidential election in January. Foreign holdings of rupee securities fell from 501 billion rupees in September 2014 to 453 billion rupees by December and recovered to 465 billion rupees in April.
Another selling spree started in April after a rate cut ahead of general elections in August.
Though foreign investors enter and exit from the rupee securities market, several of the larger investors have been in the bonds for longer term.
Some of them are looking at the ability of the new administration to have policies and whether there will be conflicts between the President and Prime Minister.
But low interest rates and an expanded domestically financed budget deficit amid a private credit recovery has set off a loan fired import boom that is pressuring the currency peg.
The sell-off bonds also added to the pressure. (Colombo/Aug24/2015)