For­eign in­vestors con­tinue to exit from gov­ern­ment se­cu­ri­ties mar­ket, stocks over rocky pol­i­tics

„To­tal for­eign out­flow form G-sec mar­ket so far this year tops Rs.10bn; Rs.860mn from stocks „In 2018, G-sec mar­ket lost Rs.160bn and net out­flow from CSE stood at Rs.22.8bn

Daily Mirror (Sri Lanka) - - MIRROR BUSINESS -

Sri Lanka may have sorted out its po­lit­i­cal grid­lock for the mo­ment, which hurt the in­vestor sen­ti­ments the most, paralysing the coun­try’s ad­min­is­tra­tion and econ­omy but the ef­fects that it left ap­pear to linger on for some time.

The exit of for­eign­ers from gov­ern­ment se­cu­ri­ties and equities mar­kets have con­tin­ued un­abated in the new year, the data re­leased by the Cen­tral Bank and Colombo Stock Ex­change showed.

The for­eign­ers have sold net Rs.3.6 bil­lion dur­ing the week ended Jan­uary 11, 2019 from the gov­ern­ment se­cu­ri­ties mar­ket while the stock mar­ket saw a net out­flow of Rs.753 mil­lion dur­ing the same pe­riod, bring­ing the to­tal out­flow for the year so far up to Rs.10.3 bil­lion and Rs.860 mil­lion, re­spec­tively.

Dur­ing 2018, Sri Lanka’s gov­ern­ment se­cu­ri­ties mar­ket lost Rs.160 bil­lion while the Colombo Stock Ex­change saw a Rs.22.8 bil­lion net out­flow.

The rise in the US trea­sury yields on the back of a strong US econ­omy sparked for­eign bond sell offs in the emerg­ing and fron­tier mar­kets as for­eign in­vestors sought less risky as­sets to park their funds.

The pace of such out­flows in­creased since Oc­to­ber 26 when Pres­i­dent Maithri­pala Sirisena trig­gered a con­sti­tu­tional cri­sis dur­ing which all three global rat­ing agen­cies cut Sri Lanka’s sov­er­eign rat­ing due to height­ened re­fi­nanc­ing risks amid po­lit­i­cal uncer­tainty.

For­eign hold­ing in gov­ern­ment se­cu­ri­ties have more than halved from a year ago to Rs.154.2 bil­lion by Jan­uary 11, 2019.

The pres­sure adds to the cur­rency, which fell in value by 19.56 per­cent in 2018 and the re­serves lost US $ 1.12 bil­lion in de­fence of the ru­pee.

Sri Lanka ended the year with gross of­fi­cial re­serves of US $ 6.9 bil­lion.

In con­trast, in 2017, Sri Lanka pur­chased US $ 1.165 bil­lion to strengthen the re­serves and the ru­pee de­pre­ci­a­tion was a mod­est 2.04 per­cent.

So far in 2019, the Sri Lankan ru­pee has ap­pre­ci­ated by 0.3 per­cent against the US dol­lar.

The Cen­tral Bank re­cently said it in­tends to cut the vol­ume of ru­pees the for­eign­ers can hold from the ex­ist­ing 10 per­cent to 5.0 per­cent in a bid to re­duce the for­eign ex­change volatil­ity.

“In view of the in­creased volatil­ity in global fi­nan­cial mar­kets, we in­tend to re­duce the thresh­old for for­eign in­vest­ment in ru­peede­nom­i­nated gov­ern­ment se­cu­ri­ties from 10 per­cent to 5 per­cent,” said Cen­tral Bank Gover­nor Dr. In­dra­jit Coomaraswamy un­veil­ing the mon­e­tary pol­icy frame­work for 2019 and be­yond.

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