Monday, 1 July 2013 00:00
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Foreigners sell a net $46 m in T-bonds in one week
Some foreigners seen shifting to T-bills from bonds
Rupee at over seven-month low
Reuters: oreign investors in Sri Lanka’s treasury bonds have been exiting gradually, exerting pressure on the rupee currency, since ever the U.S. Federal Reserve announced plans to trim its stimulus.
The exit by foreign bondholders since early June has forced the central bank to sell dollars to smoothen sharp volatility in the rupee, deviating from its usual flexible exchange rate policy.
Foreign holding in bonds fell 1.4%, or 6.02 billion rupees ($46.07 million), to 418.69 billion rupees for the week ended on June 26, central bank data showed on Friday. Holdings have fallen 2.7% or 11.68 billion rupees ($89.43 million) in the four weeks ended on June 26.
However, foreign holding in T-bills and short-term government securities has risen 2.6%, or 1.95 billion rupees, in the week to 76 billion rupees. It has risen 12.8% or 8.63 billion rupees in the four weeks ended on June 26.
Analysts said Sri Lanka’s easing monetary policy stance is hurting foreign buyers of government securities after the outlook for the U.S. economy improved and treasury yields there rose.
“Foreigners don’t have incentives in an easing monetary policy regime,” a currency dealer said on condition of anonymity.
“Exchange rate depreciation does not help them when interest rates are also coming down. So the sooner they get an opportunity to sell their bonds and get out of the market, they will.”
Foreign investors still hold 494.7 billion rupees ($3.79 billion) in treasury bills and bonds as of June 29, central bank data showed.
With foreign selling in bonds, the rupee is hovering around a seven-month low despite the central bank’s intervention. The currency has fallen 1.2% so far this week and 3.1% through this month.
Dealers said the measures by the central bank to reduce high lending rates on commercial loans also would have prompted foreigners to either take profits or go for short-tenure securities.
The central bank cut commercial banks’ statutory reserve ratio by 2%age points on Wednesday.
