COLOMBO: Sri Lankan shares crawled higher to hit a one-week high, led by commodity and banking stocks along with retail buying in small caps, and analysts expect the index to gain further due to lower interest rates despite an overbought market.

The main stock index inched up to close 0.12 percent, or 7.94 points, firmer at 6,463.06, its highest close since May 23, Reuters data showed.

The market’s 14-day Relative Strength Index (RSI) was still in overbought territory, at 78.832 and has been above the upper neutral level of 70 since April 16, Thomson Reuters data showed.

“Despite the overbought nature, we expect the market to rise further because the interest rates are on a falling trend after the central bank’s rate cut,” said a stockbroker asking not to be named.

“But there is a risk of bubble forming.”

The island nation’s central bank unexpectedly cut its key monetary policy rates by 50 basis points on May 10 to boost economic growth in the face of subdued demand and the market interest rates have been falling since then.

The day’s turnover was at 727.89 million rupees ($5.75 million), below this year’s daily average of 1.05 billion rupees.

Foreign investors were net buyers of 118.5 million rupees worth of shares, extending net foreign inflows this year to 13.66 billion rupees.

The rupee ended flat at 126.45/50 per dollar on thin volumes with exporter dollar sales offsetting importer demand for greenback, dealers said.