ECONOMYNEXT – Foreign inflows into Sri Lanka’s government securities saw a slight increase last week, Central Bank data showed, as global investors are taking positions in emerging markets ahead of possible rate cuts by the U.S. Federal Reserves, dealers said.
The foreign holding in Sri Lanka’s Treasury bills and Treasury bonds increased by around 4.4 billion rupees ($14.9 mln at 1 US dollar = 295 LKR) to 43.8 billion rupees in the week ended on October 3, the Central Bank data showed.
“It’s mostly to do with global trends,” a currency dealer told EconomyNext.
“The Fed is expected to cut rates and further cuts in 2025. So, investors are positioning themselves. We are getting the crumbs.”
The new inflows also come after Sri Lanka witnessed a peaceful presidential polls that elected Marxists Janatha Vimukthi Peramuna (JVP) leader Anura Kumara Dissanayake as the island nation’s president for a five-year tenure.
Sri Lanka, however, has suffered a foreign outflow of 66 percent or 78.1 billion rupees worth government securities in the first nine months of the year.
The Fed cut interest rates by half of a percentage point on September 18, just before Sri Lanka’s presidential polls, kicking off what is expected to be a steady easing of monetary policy with a larger-than-usual reduction in borrowing costs that followed growing unease about the health of the job market, international media have reported.
The Fed’s new Summary of Economic Projections have showed policymakers see the Fed’s benchmark rate, now at 4.75%-5.0%, falling by another half of a percentage point by the end of this year, another full percentage point in 2025, and by a final half of a percentage point in 2026 to end in a 2.75%-3.00% range.
Decline in US Treasury yields along with the Fed rate cuts favour emerging markets like Sri Lanka because of higher return for rupee investments though investors have to take the exchange rate volatility risks. (Colombo/October 07/2024)