Foreign outflows from bonds settling after rate cut

Reuters: Outflows from Sri Lanka’s Government securities have been settling after the Central Bank’s rate cut last month, the Central Bank’s Senior Deputy Governor Nandalal Weerasinghe said on Thursday, amid market concerns over more foreign bond selling.

Currency dealers say the 23 August rate cut has accelerated foreign outflows, and the rupee has fallen 0.7% since then, mainly due to foreign selling of Government securities.

Concerns over heavy outflows have weighed down on the rupee, due to possible further outflows after the rate cut, but Weerasinghe downplayed the concerns.

“The truth is that outflows have decelerated after the rate cut and now settled,” Weerasinghe told Reuters, adding that the outflow before the rate cut was higher than that after the rate cut.

Offshore investors offloaded Government securities worth Rs. 25.2 billion in the two weeks to 28 August, data showed, extending the year-to-date net foreign outflow to Rs. 53.2 billion.

“Recent capital flow movements are mainly driven by global market development as experienced by several emerging market economies,” Weerasinghe said.

The Central Bank does not release daily foreign flow data and weekly data is released with a two-day lag.

Foreign investors sold Government securities worth Rs. 12.9 billion in the week ended 21 August – the worst weekly outflows in eight months, while they offloaded Government bonds worth Rs. 12.3 billion in the following week through 28 August.

The next weekly outflow data will be released on Friday, and Weerasinghe declined to comment on outflows for the week ended 4 September.

The Central Bank on 23 August lowered rates for the second time in four months, to boost sluggish growth, after tourism and investments plummeted following the deadly Easter Sunday bomb attacks by Islamist militants.