FINANCIAL CHRONICLE – During the week ending August 28, foreign investors acquired Sri Lanka rupee bonds worth a net total of 8,059 million rupees (approximately US$24.8 million), as reported by the Central Bank, coinciding with a strengthening of the rupee.
This recent influx has contributed to a cumulative foreign investment in government securities amounting to 89.3 billion rupees (around US$271.1 million) over the past 11 consecutive weeks since June 19.
As a result of these investments, foreign holdings in Sri Lanka’s bonds have reached 210.6 billion rupees, marking the highest figure recorded by the Central Bank in its Weekly Economic Indicators. However, Central Bank officials noted that they cannot confirm whether this constitutes a record high due to daily fluctuations in the economy.
Analysts indicated that the net inflows have been facilitated by a stabilization of the rupee. The selling rate for the rupee had previously dropped to a nearly three-year low of 354 against the U.S. dollar on May 21, but has since recovered, reaching around 332.
Prior to this decline, the rupee had maintained a stable value for over three years, until its significant depreciation in May, which the Central Bank attributed to increased imports of oil and vehicles amid ongoing conflict in the Middle East. Year-to-date, the rupee has depreciated by 5.7 percent as of August 28.
Globally, investor sentiment remains cautious regarding economic growth, influenced by the recent escalation in the Middle East.
So far this year, Sri Lanka has experienced total inflows of approximately 69.3 billion rupees into rupee bonds, following a net inflow of 71.5 billion rupees the previous year.
Analysts suggest that Sri Lanka’s previous deflationary measures contributed positively to these inflows, particularly in light of reduced imports. However, the country has witnessed a rise in inflation over the past four months, attributed to a gradual increase in fuel prices by nearly 50 percent.
In response, the government has implemented two reductions in fuel prices during the latter part of June and in August.
Moreover, the Central Bank increased its key monetary policy rate by 100 basis points in May to mitigate inflationary pressures caused by heightened demand. Prior to this rate hike, the Central Bank had maintained its key policy rates since May 2025 after a reduction of 825 basis points over a period of 24 months starting June 2023, all while foreign investors continued to invest in rupee bonds despite minor fluctuations in the local currency. (Colombo/September 01/2026)
