Rupee ends lower on foreign sell-off

(Colombo) REUTERS: The Sri Lankan rupee ended a tad weaker yesterday in dull trade amid pressure on the currency due to foreign outflows from bonds and stocks as a lingering political crisis weighed on sentiment ahead of a key ruling by the island nation’s Supreme Court.

After the markets closed, the Supreme Court ruled that Sri Lankan President Maithripala Sirisena’s decision to dissolve parliament ahead of its term is unconstitutional, in a setback for the embattled leader in his dispute with an ousted prime minister.

Foreigners sold a net Rs.351.2 million (US$1.96 million) worth of stocks yesterday, and they have been net sellers of Rs.10.6 billion since the political crisis began on Oct. 26. The bond market saw outflows of about Rs.51.2 billion between Oct. 25 and Dec. 5, Central Bank data showed. 
The rupee ended at 179.55/75 per dollar yesterday, compared with 179.50/60 in the previous session. 

Credit rating agencies Fitch and S&P downgraded Sri Lanka’s sovereign rating last week, citing refinancing risks and an uncertain policy outlook, after Sirisena’s sacking of his Prime Minister in October triggered the political crisis. This year, there have been Rs.20 billion of outflows from stocks and Rs.143.4 billion from government securities, the latest data from the bourse and Central Bank data showed.

The rupee hit a record low of 180.85 per dollar on Nov. 28. It has weakened about 3.6 percent since the political crisis began. The currency fell 1.8 percent in November and dived 17 percent so far this year. 

Moody’s downgraded Sri Lanka on Nov. 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 for investors since Sirisena sacked Ranil Wickremesinghe as the prime minister and replaced him with Mahinda Rajapaksa, who was later voted out twice in parliament through confidence votes. 

A court has barred Rajapaksa and his cabinet from functioning in their positions after they refused to step down despite being ousted via two confidence votes. Five-year government bond yields have risen 60 basis points since the political crisis began on Oct. 26, while yields on Sri Lanka’s dollar bonds due in 2022 have risen around a percentage point to 8.21 percent since then. The Colombo stock index ended 0.41 percent higher at 6,060.20 on Wednesday. The turnover was Rs.675.4 million, less than this year’s daily average of Rs.826.9 million.