Sri Lanka rupee weaker to dollar; bond yields down as currency markets reflected continued pressure on the local unit while government securities recorded marginal gains in the secondary market. Dealers said the rupee weakened further against the US dollar amid ongoing liquidity management measures and foreign exchange market activity.
Sri Lanka rupee weaker to dollar as bond yields trend lower
There was no spot quote available for the rupee, although the one-week forward was quoted at 321.60/90. In the spot next market on Wednesday, the rupee traded at 321.00/30 against the US dollar, weaker compared to 319.90/320.40 recorded in the previous session.
Market participants noted that the currency’s movement comes amid changing liquidity conditions in the banking system following recent actions by the Central Bank of Sri Lanka. Last week, the central bank resumed repo operations aimed at absorbing some of the excess liquidity that had accumulated through buy-sell swaps and dollar purchases.
Analysts said the move to mop up liquidity indicates a gradual shift in monetary operations after substantial liquidity injections remained in the financial system over recent months. Estimates suggest excess liquidity levels had climbed close to Rs. 400 billion, significantly higher than levels observed before Sri Lanka’s economic crisis.
The latest depreciation in the currency has renewed discussions surrounding exchange rate management and monetary policy implementation. Critics have argued that aggressive dollar purchases and liquidity injections during 2025 contributed to the weakening of the rupee even as authorities maintained that the exchange rate remained market-driven.
During the previous monetary cycle, the rupee reportedly weakened from around 297.50 to approximately 310 against the US dollar as private credit demand recovered and the central bank continued interventions through buy-sell swaps and foreign currency purchases. Market observers said such actions influenced exporter pricing behaviour and broader exchange rate expectations.
In 2026, the rupee depreciated further from around 310 to 320 per US dollar despite weaker credit conditions following Cyclone Ditwah-related economic disruptions. Analysts pointed to continued official dollar purchases earlier this year as a factor preventing appreciation pressure on the local currency.
Despite currency weakness, the government bond market recorded modest improvements with Sri Lanka bond yields edging lower across several maturities in the secondary market. Investors appeared to respond positively to easing yield movements, suggesting improved confidence in medium-term interest rate expectations.
A government bond maturing on 1 July 2028 was quoted at 9.65/70%, down from 9.70/75% in the previous session. Meanwhile, a bond maturing on 15 October 2029 was quoted at 9.90/10.00%, improving from 10.05/15%.
Similarly, a bond maturing on 1 July 2030 traded at 10.10/15%, compared with 10.18/23% earlier, while the 1 June 2033 maturity was quoted at 10.95/11.05%, slightly lower than the previous 11.00/10% range.
Longer-dated bonds also reflected marginal declines in yields. The bond maturing on 15 June 2034 was quoted at 11.18/22%, easing from 11.25/35%, while the 15 June 2035 maturity remained flat at 11.25/35%.
Currency market activity also reflected changes in telegraphic transfer rates published by commercial banks. The US dollar was quoted at 317.5000 buying and 324.5000 selling. The British pound traded at 430.8966 buying and 442.3418 selling, while the euro stood at 370.9293 buying and 382.4691 selling.
Meanwhile, the Colombo Stock Exchange continued its positive momentum with both major indices closing higher during trading. The All Share Price Index gained 169.56 points, or 0.75%, to close at 22,909, while the S&P SL20 Index advanced 46.24 points, or 0.74%, to settle at 6,291.
Equity market analysts said improving investor sentiment and lower bond yields may have contributed to stronger participation in selected stocks, despite ongoing currency concerns. Market activity in both fixed-income and equity segments continues to be closely linked to broader monetary policy expectations and external economic conditions.
Economists note that currency stability remains a key factor for Sri Lanka’s economic recovery efforts, particularly as the country seeks to strengthen investor confidence, manage inflation risks and improve external sector stability. Lower bond yields, meanwhile, could support borrowing conditions if the trend continues in the coming months.
Market participants are expected to continue monitoring central bank liquidity operations, exchange rate developments and global financial conditions for signals regarding future monetary policy direction and broader macroeconomic stability.