ECONOMYNEXT – Foreign investors have dumped 34.1-billion-rupee ($106 million) worth of Sri Lanka government securities in 14 weeks through November 3, the central bank data showed, after sharp rupee appreciation has reversed and reduction in the key policy interest rates.
The foreign holding in Sri Lanka’s treasury bills and treasury bonds fell to 148.4 billion rupees on the week ended on Friday (03), from 182.5 billion rupees on the week ended on July 27.
Currency dealers said the central bank’s rate reduction as well as the uncertainty of the rupee volatility have prompted foreign investors to shift to safe havens like US treasuries.
“The rupee appreciated sharply three months back and a foreign investor can earn capital gain if he bought government securities at 365 and sold any amount below that,” a currency dealer said.
“The reduction of the policy rate means lower returns for investors. They also might have possible concerns over shrinking capital gains because the rupee is depreciating now.”
The central bank has reduced its key policy rates by 550 basis points since it changed from a hawkish monetary policy to dovish in June.
It has also reduced the Statutory Reserve Ratio (SRR) by 200 basis points during the same period to boost liquidity in the market with an aim to reduce market interest rates.
Under tough International Monetary Fund (IMF) conditions for its $3 billion loan program, the central bank raised its key policy rates last year and this year to bring down inflation which hit over 80 percent last year. The year-on-year inflation has fallen to 1.5 percent in October.
The rupee has fallen to around 330 against the US dollar this week from 285 level early in June. The local currency was at 365 rupees against the US dollar early this year. Depreciation causes capital loss for foreign investors. (Colombo/Nov 4/2023)