Rupee firms on remittances; stocks end steady

(Colombo) REUTERS: The Sri Lankan rupee ended stronger yesterday as dollar inflows from remittances ahead of the traditional new year provided support, while stocks closed steady in dull trade.

Markets shrugged off the central bank’s decision on Monday of leaving its key interest rates unchanged, a widely expected move to boost an economy struggling in the wake of a political crisis. 

The currency ended at 174.60/70 to the dollar, compared with Tuesday’s close of 174.75/85.

The island nation’s currency gained 0.26 percent last week, and 4.6 percent so far this year, as exporters converted dollars and foreign investors purchased government securities amid stabilising investor confidence after the country repaid a US $ 1 billion sovereign bond in mid-January.

Dealers, however, expect the pressure on the rupee to ease with more inward remittances ahead of the Sinhala-Hindu New Year on April 14. 

Sri Lanka was plunged into political turmoil in October when President Maithripala Sirisena abruptly removed Prime Minister Ranil Wickremesinghe and then dissolved parliament. A court later ruled the move was unconstitutional, and Wickremesinghe was reinstalled as premier. 

Investor sentiment took a big hit as a result of the 51-day political crisis, leading to credit rating downgrades and an outflow of foreign funds from government securities.

The rupee dropped 16 percent in 2018, and was one of the worst-performing currencies in Asia due to heavy foreign outflows. 

Foreign investors sold a net Rs.1.9 billion worth of government securities in the week ended April 3, the first weekly fall in five weeks, but foreign investors were net buyers of 1.6 billion rupees so far this year, the latest central bank data showed. The Colombo Stock Exchange index closed steady at 5,583.58.  The benchmark stock index rose 1.2 percent last week, recording its second consecutive weekly gain in nine. The index has declined 7.7 percent so far this year.

Turnover came in at Rs.218.6 million, around a third of this year’s daily average of Rs.620 million. Last year’s daily average came in at 834 million rupees. 

Foreign investors bought a net Rs.10 million worth of shares yesterday, buy they have sold year-to-date net foreign outflow of Rs.5.9 billion worth of equities. 

The latest budget aims to increase government spending by 13 percent in 2019, during which the presidential election must be held, while it has set an ambitious goal to reduce a large fiscal deficit.