FINANCIAL CHRONICLE – During the week ending on July 2, foreign investors purchased Sri Lankan government securities worth a net total of US$3 million, according to data released by the Central Bank. This activity coincided with a recovery of the rupee, which had recently hit a near four-year low in May.
In the same week, foreign sales amounted to a net of 1,001 million rupees (equivalent to US$3 million at an exchange rate of 1 USD = 330 rupees). Despite this recent inflow, Sri Lanka has experienced a cumulative net outflow of approximately US$13.7 million since the beginning of the year, primarily due to significant fluctuations in the rupee over the past two months.
The rupee depreciated to a low of 354 against the U.S. dollar on May 21 but has since rebounded to around the 330 mark, as indicated by the latest Central Bank data. Prior to this depreciation, the rupee had maintained a stable value for over three years; however, a rise in oil and vehicle imports, exacerbated by ongoing conflicts in the Middle East, contributed to its decline. As of July 2, the rupee had depreciated by 7.7 percent this year.
In the previous week, the country recorded a net inflow of over Rs. 14.5 billion following the rupee’s stabilization. Investors worldwide are currently exercising caution regarding economic growth, influenced by recent escalations in the Middle East.
Last year, Sri Lanka saw a total inflow of approximately 71.5 billion rupees (around US$234.4 million) into rupee-denominated bonds. Analysts have noted that the country’s deflationary strategies in the past facilitated these inflows as imports were limited.
However, inflation has started to rise in the last three months, largely driven by a nearly 50 percent increase in fuel prices, although the government did reduce fuel prices in the final week of June. To combat inflationary pressures stemming from increased demand, the Central Bank raised its key monetary policy rate by 100 basis points in May.
Prior to the rate hike in May, the Central Bank had maintained steady policy rates since May 2025, having previously reduced them by a total of 825 basis points over a 24-month period beginning in June 2023. Despite the slight depreciation of the local currency, foreign investors continued to show interest in purchasing rupee bonds.
