Sri Lanka to halve foreign investor limit of rupee Treasuries

ECONOMYNEXT – Sri Lanka will cut the volume of rupee bonds foreigners can hold from 10 percent of total outstanding to 5 percent, Central Bank Governor Indrajit Coomaraswamy said as a soft-pegged regime has put renewed pressure on the currency.

Some bond investors are footloose, and making the external sector volatile, he said.

"In view of the increased volatility global financial markets we intend to reduce the threshold for foreign investment in rupee denominated from 10 percent to 5 percent," Governor Coomaraswamy said presenting a road map for monetary policy for 2019.

Sri Lanka runs a soft-peg with the US dollar and has found it difficult to cope with bond outflows as it tries to prevent a ‘disorderly adjustment’ of the exchange rate and then print money to keep rates down.

Rupee bond holders have been fleeing Sri Lanka from around May after the central bank cut rates and injected liquidity in April.

Analysts have warned that Sri Lanka has to reform the central bank or abandon the soft-peg to allow free capital mobility and help make the island financial centre. 

Foreign companies raised capital in Sri Lanka’s stock market during British rule when Sri Lanka had a currency board, when the agency intervenes in forex markets, but does not print money after the intervention. (Colombo/Jan02/2018)

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