Rupee ends firmer on dollar remittances

(Colombo) REUTERS: The Sri Lankan rupee closed firmer yesterday as banks sold dollars due to month-end inward remittances, but the rupee is still under pressure as investors continue to sell rupee-denominated assets on a credit rating downgrade and a delayed IMF loan discussion in the wake of a political crisis.

Foreigners sold a net Rs.13.5 million worth of stocks yesterday and they have been net sellers of Rs.8.7 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.18.1 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 178.70/90 per dollar yesterday, compared with 178.80/179.20 in the previous session. It has weakened about 3.2 percent since the political crisis began. The currency fell 1.8 percent in November and 16.4 percent so far this year.

The rupee hit a record low of 180.85 per dollar on Wednesday, surpassing its previous low of 180.50 hit on 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 downgrade coincided with a decision by the International Monetary Fund to delay discussions on its loan tranche to Sri Lanka.

The political standoff took another turn yesterday as a court issued an order preventing Mahinda Rajapaksa from acting as prime minister and holding Cabinet meetings.

The new government has not been recognised by any foreign countries because they have not proven their Parliament majority.The political paralysis remains the main concern of investors. While 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.The political impasse could be set to drag on longer after President Sirisena said last week he would not reinstate Wickremesinghe as prime minister even if he was able to prove his majority in Parliament.

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 55 basis points since the crisis unfolded on October 26.

The Colombo stock index rose 0.1 percent to 6,025.20 yesterday. It rose 1.5 percent last week, recording its first weekly gain in four. It gained 1.1 percent in November and has declined 5.5 percent so far this year.

Stock market turnover was Rs.445.9 million yesterday, less than this year’s daily average of Rs.833.9 million.