ECONOMYNEXT – Investors in Sri Lanka’s rupee bonds have sold 9.6 billion rupees of bonds in the week to September 22, taking the total since a rate cut in April 2015 to 132.2 billion rupees or around 980 million US dollars, data showed.
By mid-April 2015, when policy rates were cut despite rising domestic credit and a deteriorating budget deficit, foreign investors held 465.4 billion rupees of bonds, having increased their holdings until then, data released by the Central Bank showed.
There were also bond sales in the last quarter of 2014, but buying interest returned in the first quarter.
Sri Lanka’s rupee has fallen from 130.1 to 141 over the past year as the Central Bank printed billions of rupees by defending short term interest rates, promoting unsustainable credit and imports and lost foreign reserves.
On September 04 Sri Lanka attempted to float the rupee, but reserve outflows are continuing. Only a part of the outflows are due to capital flight.
Sri Lanka has a so-called soft-peg to the US dollar which is inherently unstable.
Analysts have called for reform of Sri Lanka’s central bank to stop the agency from generating regular balance of payments pressure.
Other Asian soft-pegs including Indonesia which are facing similar problems. (Colombo/Sept28/2015)