Rupee ends weaker after rating downgrades

(Colombo) REUTERS: The Sri Lankan rupee closed weaker yesterday with banks buying dollars as investors continued to sell rupee-denominated assets on credit rating downgrades by rating agencies and a delayed IMF loan discussion in the wake of a political crisis. Credit rating agencies Fitch and Standard & Poor’s downgraded Sri Lanka yesterday, citing refinancing risks and an uncertain policy outlook, after President Maithripala Sirisena’s sacking of his Prime Minister in October triggered a political crisis. Foreigners sold a net Rs.354.9 million (US$1.98 million) worth of stocks yesterday, and they have been net sellers of Rs.9.1 billion since the political crisis started on Oct. 26. The bond market saw outflows of about Rs. 34.2 billion between Oct. 25 and Nov. 28, the Central Bank data showed. 
This year, there have been Rs.18.5 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 179.00/20 per dollar yesterday, compared with 178.70/90 in the previous session. 

It has weakened about 3.3 percent since the political crisis began. The currency fell 1.8 percent in November and 16.6 percent so far this year.
The rupee hit a record low of 180.85 per dollar on Nov. 28, surpassing its previous low of 180.50 hit the previous day. 

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 standoff took another turn on Monday 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 on Monday he would not reinstate Wickremesinghe as Prime Minister even if he is backed by all 225 lawmakers in the parliament.

The Central Bank on Nov. 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 60 basis points since the political crisis unfolded on Oct. 26, while yields on Sri Lanka’s dollar bonds due in 2022 have risen by more than a percentage point to 8.24 percent since the crisis began.

The Colombo stock index fell 0.22 percent to 6,011.68 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 5.6 percent so far this year.

 Stock market turnover was Rs. 867 million yesterday, more than this year’s daily average of Rs.833.9 million.