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Foreigners extend Sri Lanka rupee bond sales amid rate cut, Coronavirus

ECONOMYNEXT – Foreign investors continued to sell rupee bonds in February 2020, after a rate cut in January, with one of the steepest one week sell-downs taking place in the last week, official data showed as a Coronavirus outbreak also spooked global investors.

Sri Lanka’s stock markets also plunged, with domestic selling pressure adding to foreign investor sales.

Foreign investor holdings of Sri Lanka rupee bonds fell to 91.2 billion rupees (about 50 million US dollars) in the week to February 26, from 102.66 billion rupees a week ago, central bank data showed.

Sri Lanka cut policy rates on January 30, despite the budget deficit expected to rise and private credit also expected to pick up in 2020.

Foreign investors have sold 16.69 billion rupees worth bonds after the rate cut. About 7 billion rupees of bonds were sold before the rate cut.

Excess liquidity also spiked in money markets in late February, stabilizing, giving an opportunity for foreign investor to exit.

Foreign investors have steadily exited Sri Lanka rupee bonds since 2015, as liquidity injections made to enforce rate cuts de-stabilized.

Monetary stability also came under pressure from an explicit real effective exchange rate targeting exercise, which sought to boost hard goods exports by forcing down real wages of export sector workers. (Colombo/Mar02/2020)

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