FINANCIAL CHRONICLE – As of the week concluding on July 9, foreign investments in Sri Lankan rupee-denominated bonds reached their highest level in nearly three years. This surge occurred as international investors purchased government securities amounting to a net total of US$97.1 million, according to data from the Central Bank. The notable increase in foreign investment coincided with a recovery of the rupee, which had earlier dipped to a near four-year low.
During this week, foreign investors acquired net bonds worth 32,036 million rupees (approximately US$97.1 million, based on an exchange rate of 1 USD = 330 rupees), bringing total foreign holdings in rupee bonds to 168,895 million rupees. This marks the highest level since August 10, 2023, as reported by the Central Bank.
This recent influx has transformed the total foreign investment in rupee bonds for the year into a net gain of US$83.4 million, a significant turnaround from a net outflow of US$13.5 million recorded just a week prior.
The rupee had experienced a dramatic decline, hitting a low of 354 against the U.S. dollar on May 21, but has since rebounded to around the 330 mark. Prior to this depreciation, the currency had remained stable for over three years, with the Central Bank attributing the recent decline to increased oil and vehicle imports amidst ongoing tensions in the Middle East. As of July 9, the rupee had depreciated by 7.9 percent this year.
In the last three weeks, Sri Lanka has seen a net inflow exceeding Rs.47.5 billion (around US$144.1 million) as the rupee began to stabilize. Globally, investors remain wary of economic growth due to the ramifications of the recent Middle East conflict.
Last year, Sri Lanka experienced total inflows of approximately 71.5 billion rupees (around US$234.4 million) in rupee bonds. Analysts have pointed out that the country’s past deflationary policies facilitated these inflows, especially as imports were limited.
However, inflation has risen in the past three months, largely driven by a nearly 50 percent increase in fuel prices, although the government did lower fuel prices in the final week of June. To combat inflationary pressures resulting from heightened demand, the Central Bank increased its key monetary policy rate by 100 basis points in May.
Prior to this rate hike, the Central Bank had maintained its key rates since May 2025, following a cumulative reduction of 825 basis points over a two-year span starting in June 2023. Despite the slight depreciation of the local currency, foreign investors have continued to show interest in rupee bonds. (Colombo/July 12/2026)
