Friday, 5 July 2013 00:00
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Foreigners hold $ 3.8 b in Sri Lanka Government securities
Foreigners have mostly invested in long-term bonds: Governor Cabraal
Says current fx policy appropriate to deal with situation
Reuters: Sri Lanka can maintain exchange rate stability and there is little sign that outflows resulting from foreign investors selling government securities will pose a significant risk, Central Bank Governor Ajith Nivard Cabraal said on Thursday.
“We are well equipped to handle any possible outflow,” Cabraal told a Thomson Reuters Global Market Forum on Thursday. “We have shown that capability and capacity in the past.”
Currency dealers expect outflows to keep pressure on the rupee and a cut in Sri Lanka’s credit rating outlook to stable from positive announced on Tuesday by Moody’s could add to the bearishness.
Foreign investors, who hold around $ 3.8 billion in Sri Lankan Government securities, began gradually retreating early last month as they have done in other emerging markets after the outlook for the US economy improved, making US treasury yields more attractive.
Foreign holdings in T-bonds have fallen 2.7% or Rs. 11.68 billion ($ 89.43 million) in the four weeks that ended on 26 June. Some foreigners have been shifting funds to short term T-bills, data showed.
The rupee currency fell 3.12% in June, with the Central Bank cushioning the fall by selling dollars to curb volatility, and the currency has stabilised near an eight month low of 130.60/70 per dollar.
“Our current (exchange) rate seems to be holding reasonably well in order to ensure that the Sri Lankan economic activity is supported,” Cabraal said.
Cabraal said most foreigners were invested in long term paper, having put money in at a time when Sri Lanka’s economic fundamentals were in worse shape. He said the scale of foreign selling was less than had been seen elsewhere.
“There is little risk of huge foreign selling of T-bonds. Therefore, we believe that our current exchange rate policy would be appropriate to deal with the situation,” he said.
