Sri Lankan rupee strengthens as bond yields and liquidity shift

The Sri Lankan rupee has shown recent appreciation against the US dollar, moving from levels around 331.23 to approximately 328.45/70 in the spot market. This currency strength has coincided with a decline in secondary market government bond yields across several maturities, including bonds maturing between 2029 and 2036.

Banking system liquidity has seen significant fluctuations, rising to LKR 333.21 billion as of August 24, up from LKR 278.51 billion in the previous period. While short-term Treasury bill yields have eased, foreign investment patterns show a divergence: foreign investors have remained net sellers on the Colombo Stock Exchange, yet foreign holdings of rupee-denominated government securities have continued an upward trajectory, increasing by 4.27% week-on-week.