Overnight liquidity climbs to LKR 246.8 billion as foreign investor appetite for rupee-denominated government securities extends its weekly gain
Liquidity in Sri Lanka’s banking system expanded further this week, even as foreign investors continued to build positions in the country’s local currency government securities.
Overnight liquidity in the banking system rose to LKR 246.8 billion, up from LKR 218.0 billion in the prior session, reflecting an easier funding environment for commercial banks. The increase in system liquidity came alongside a broader softening in government securities yields, as buying interest picked up across the curve during the week.
Foreign holdings of rupee-denominated government securities rose 3.53% week-on-week to LKR 188.8 billion, continuing a steady upward trend observed over the past several weeks. Holdings have climbed from roughly LKR 121.3 billion in mid-June to their current level, marking a sustained build-up in foreign investor exposure to local currency debt even as foreign participation in the equity market has remained net negative over the same period.
The Central Bank’s holdings of government securities have remained broadly stable in recent sessions, providing a steady backdrop against which the liquidity expansion has taken place. Total outstanding government securities stock stood at LKR 18,619.08 million as of the week, essentially unchanged from the prior week, with Treasury bonds accounting for the large majority of the total at LKR 16,248 million against LKR 2,371 million in Treasury bills.
The improvement in system liquidity coincided with a Treasury bill auction in which rates declined across all tenors offered, and a Treasury bond auction that drew total bids of LKR 148.1 billion. On the currency front, the rupee firmed marginally against the US dollar, closing at LKR 335.43 from LKR 335.60 previously.
Key Numbers
| Metric | Value |
|---|---|
| Overnight Liquidity | LKR 246.8 Bn (from LKR 218.0 Bn) |
| Foreign Holdings of G-Secs | LKR 188.8 Bn (+3.53% WoW) |
| Foreign Holdings (mid-June) | ~LKR 121.3 Bn |
| Total Outstanding G-Secs | LKR 18,619.08 Mn (flat WoW) |
| T-Bond Auction Total Bids | LKR 148.1 Bn |
| USD/LKR | 335.43 (from 335.60) |
Business Impact
Higher banking system liquidity generally supports more accommodative short-term funding conditions for banks, which can indirectly ease pressure on lending rates over time. The continued rise in foreign holdings of local currency government debt signals sustained external confidence in rupee-denominated instruments, a factor relevant to businesses and treasury managers monitoring currency stability and domestic funding costs.
Source Attribution
Source: Central Bank of Sri Lanka statistics and publicly available market information.