Sri Lanka rupee gained marginally on Friday, reflecting cautious investor optimism amid ongoing market adjustments. Bond yields fell across maturities, signaling improved sentiment in both the currency and fixed-income markets.
Sri Lanka rupee strengthens slightly while government bond yields drop across maturities
Sri Lanka’s rupee was quoted at 309.05/15 to the US dollar in the spot market on Friday, showing a slight recovery from the previous day’s 308.15/40 levels. Dealers noted that this movement, although modest, marks a continuing adjustment after a year of currency depreciation driven by macroeconomic pressures including record current account deficits and higher tax collections.
Throughout 2025, the rupee fell from 293.10/30 to 308.15/40, largely reflecting widening current account gaps and fiscal pressures. Analysts attribute the depreciation not solely to trade or budget deficits but also to the central bank’s operational approach, which at times involved purchasing dollars in excess of its deflationary objectives, thereby monetizing temporary balance of payments surpluses. These moves, coupled with rate cuts that ignored reserve accumulation needs, contributed to currency volatility.
Market experts caution that under flexible inflation targeting, the central bank faces challenges in maintaining monetary stability while collecting adequate reserves. Despite these structural concerns, the rupee’s marginal strengthening suggests short-term relief and a stabilizing influence from investor activity and currency market interventions.
In the secondary bond market, yields declined significantly across several maturities. A bond maturing on 15 February 2028 was quoted at 8.93/98 percent, down from 9.05/10 percent, while the 1 May 2028 bond fell to 8.97/9.02 percent. The 15 December 2029 bond traded at 9.40/45 percent, down from 9.50/55 percent, and the 1 July 2030 bond was quoted at 9.56/62 percent. Longer-term securities also saw yield reductions, including the 15 March 2031 bond at 9.85/90 percent and the 15 December 2032 bond at 10.20/25 percent, slightly down from prior quotes of 10.22/30 percent. The 1 November 2033 bond saw marginal declines to 10.35/40 percent.
These yield movements reflect improved demand for government securities amid a recovering currency market. Dealers highlighted that declining yields indicate investor confidence in long-term debt instruments, suggesting that Sri Lanka’s sovereign borrowing costs may remain manageable despite past volatility.
Currency exchange rates also reflected modest adjustments. The telegraphic transfer rates for the US dollar were 305.5000 for buying and 312.5000 for selling. The British pound traded at 408.0971 buying and 419.4589 selling, while the euro was quoted at 356.2224 buying and 367.5856 selling. These rates demonstrate a gradual stabilization across major foreign currencies.
The Colombo Stock Exchange mirrored these positive trends. The All Share Price Index (ASPI) rose 0.27 percent, or 61.31 points, reaching 22,520, while the more liquid S&P SL20 index increased 0.35 percent, or 21.57 points, to 6,116. Analysts noted that continued gains in equities alongside stabilizing currency movements suggest cautious optimism among local and institutional investors.
Overall, the marginal strengthening of the Sri Lanka rupee combined with falling bond yields indicates improving sentiment in the financial markets. While macroeconomic challenges remain, including past fiscal pressures and external vulnerabilities, the latest data points suggest that careful policy measures and market participation are helping to stabilize both currency and debt markets.