Rupee ends weaker as foreign outflows hurt

(Colombo) REUTERS: The Sri Lankan rupee ended weaker yesterday amid pressure on the currency due to foreign outflows from bonds and stocks as uncertainty from a political crisis dented sentiment.

The political crisis was expected to ease after President Maithripala Sirisena reinstated Ranil Wickremesinghe, whom he had ousted in October. The country plunged into a 51-day crisis following the ouster. However, delay in appointing cabinet ministers dented sentiment, dealers said.

Political paralysis remained the main concern for investors since Sirisena abruptly sacked Wickremesinghe and replaced him with Mahinda Rajapaksa, who failed to win a parliamentary majority and resigned on Saturday as a government shutdown loomed.

Wickremesinghe sworn in as Sri Lanka’s prime minister on Sunday, making a remarkable comeback weeks after being ousted by President Sirisena under controversial circumstances. 

The Sri Lankan rupee strengthened in early trade on Monday, while bond yields dropped as a seven-week political crisis appeared to ebb, but investors took a cautious stance to observe whether Sirisena and Wickremesinghe could work well together.

Foreigners were net sellers of a net Rs.333.5 million worth of stocks yesterday. They have been net sellers of Rs.11.7 billion since the political crisis began on October 26. The bond market saw outflows of about Rs.56 billion between October 25 and December 14, the Central Bank data showed. The rupee ended at 180.50/70 per dollar, compared with 180.10/30 in the previous session.

Credit rating agencies Fitch and S&P downgraded Sri Lanka’s sovereign rating early December, 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.21.1 billion of outflows from stocks and Rs.148.2 billion from government securities, the latest data from the bourse and the Central Bank showed.

The rupee had touched a record low of 180.85 to the dollar on November 28. It has weakened about 4.1 percent since the political crisis began. The currency dropped 1.8 percent in November, and has lost 17.5 percent this year. 

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.

Five-year government bond yields have risen 55 basis points since the political crisis began, while yields on Sri Lanka’s dollar bonds due in 2022, which have risen around a percentage point to 8.0 percent through Friday, fell 0.35 percent to 7.7 percent yesterday.

The Colombo stock index ended up 0.06 percent at 6,050.95 yesterday. Turnover was Rs.3.6 billion, highest since November 13 and more than four times of this year’s daily average of Rs.834.1 million.