FINANCIAL CHRONICLE – For the first time in 14 weeks, foreign investors divested from Sri Lankan rupee bonds during the week concluding on September 18, according to data from the Central Bank. This marked a significant shift as the rupee experienced a depreciation.
Offshore investors net sold rupee bonds worth 7,302 million rupees (approximately US$22.5 million), following a streak of purchases totaling 92 billion rupees (around US$280 million) over the preceding 13 weeks. These outflows resulted in a decrease of foreign ownership in government securities, bringing the total down to 206.1 billion rupees, a figure that was previously at a record high as reported in the Central Bank’s Weekly Economic Indicators.
Experts attribute the net outflows to the decline in the value of the rupee. The selling rate of the currency dropped to a near three-year low of 354 against the U.S. dollar on May 21, but it had shown some recovery, improving to around 332 in the prior week. Nonetheless, it faced another setback last week, falling to 335 per U.S. dollar.
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The rupee had maintained a stable value for over three years until the sharp decline in May, which the Central Bank linked to increased imports of oil and vehicles, alongside ongoing geopolitical tensions in the Middle East. Since the beginning of September, the rupee has depreciated by 6.7 percent.
Investor sentiment worldwide remains cautious regarding economic growth due to the recent escalations in the Middle East. Despite this, Sri Lanka has recorded a total inflow of approximately 64.8 billion rupees into rupee bonds this year, following a net inflow of 71.5 billion rupees in the previous year.
In recent months, the country has faced rising inflation, largely driven by a nearly 50 percent increase in fuel prices. The government has responded by reducing fuel prices on two occasions in late June and August. To combat inflationary pressures from heightened demand, the Central Bank raised its key monetary policy rate by 100 basis points in May.
Prior to this increase, the Central Bank had maintained its key policy rates since May 2025, having 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 had continued their purchases of rupee bonds. (Colombo/September 21/2026)
