(Colombo) REUTERS: The Sri Lankan rupee closed weaker yesterday, hit by concerns over a lingering political crisis, as banks bought dollars to facilitate foreign capital outflows from rupee-denominated assets.

Credit rating agencies Fitch and Standard & Poor’s downgraded Sri Lanka’s sovereign rating on Tuesday, citing refinancing risks and an uncertain policy outlook, after President Maithripala Sirisena’s sacking of his prime minister in October triggered a political crisis.

Yesterday, Fitch downgraded Sri Lanka’s financial institutions and Sri Lanka Telecom, citing sovereign downgrade.

Foreigners sold a net Rs.241.8 million worth of stocks yesterday and they have been net sellers of Rs.9.3 billion since the political crisis started on October 26. The bond market saw outflows of about Rs.34.2 billion between October 25 and November 28, the Central Bank data showed.

This year, there have been Rs.18.7 billion of outflows from stocks and Rs.123.2 billion from government securities, the latest data from the bourse and the Central Bank data showed. 

The rupee ended at 179.20/25 per dollar yesterday, compared with 179.00/20 in the previous session. It has weakened about 3.4 percent since the political crisis began. The currency fell 1.8 percent in November and 16.8 percent so far this year.

The rupee hit a record low of 180.85 per dollar on November 28, surpassing its previous low of 180.50 hit the previous day. 

Moody’s downgraded Sri Lanka on November 20 for the first time since it started rating the country in 2010, blaming the political turmoil for aggravating its already problematic finances. 

The political paralysis remains the main concern of investors. While Mahinda Rajapaksa and President Maithripala Sirisena have failed to win support in Parliament for their new government, the deposed prime minister Ranil Wickremesinghe’s coalition, which claims it does have majority support in Parliament, has not been allowed to try to form a government. Although Rajapaksa was ousted via two confidence votes, he has refused to step down.

The Central Bank on November 14 unexpectedly raised its main interest rates to defend the rupee, which has faltered as foreign capital outflows pick up due to the domestic crisis as well as rising U.S. interest rates.

Five-year government bond yields have risen 45 basis points since the political crisis unfolded on October 26, while yields on Sri Lanka’s dollar bonds due in 2022 have risen by more than a percentage point to 8.13 percent since the crisis began.

The Colombo stock index fell 0.24 percent to 5,997.23 yesterday. It had risen 1.5 percent last week, recording its first weekly gain in four. It gained 1.1 percent in November and has declined 5.8 percent so far this year. 

Stock market turnover was Rs.614.7 million yesterday, less than this year’s daily average of Rs.831.3 million.