Rupee gains on dollar sales; Fitch downgrades forecast

• Fitch downgrades average forecast to Rs.186 against US dollar for this year
• On January 3, rupee dropped to an all-time low of Rs.183 against US dollar
• The currency has appreciated 2.4 percent so far this year

(Colombo) REUTERS: Sri Lanka’s rupee rose 0.5 percent yesterday, and posted a gain of 2.4 percent for the month, as foreign investors purchased government securities, while Fitch Rating agency revised down forecast for the currency for 2019 and 2020. 

Fitch Solutions Macro Research, a subsidiary under Fitch Group in a report revised its average forecast for the rupee weaker to 186.00 per U.S. dollar for this year and 192.00 in the next year, from the previous 177.00 and 183.00 respectively. 

“We expect the rupee to continue weakening over the short-term due to worsening terms of trade, although the pace of depreciation is likely to ease from what was seen during the November/December 2018 constitutional crisis,” it said.

“Sri Lanka’s higher inflation trajectory relative to the United States, the nation’s need to accumulate dollars to repay its external debt and to achieve the IMF’s foreign reserves target over longer term will likely see further weakness for the rupee,” it added. 

The rupee closed at 178.40/60 per dollar, compared with Wednesday’s close of 179.30/60, market sources said. 

On January 3, the rupee dropped to an all-time low of 183.00 against the dollar. The currency has appreciated 2.4 percent so far this year. 

Investor confidence in Sri Lanka is stabilising after the country repaid a US $1 billion sovereign bond in mid-January, Central Bank Governor Indrajit Coomaraswamy told Reuters on Monday. 

Worries over heavy debt repayment after a 51-day political crisis that resulted in a series of credit rating downgrades have dented investor sentiment as the country is struggling to repay its foreign loans, with a record US $5.9 billion due this year, including US $2.6 billion in the first three months. 

The International Monetary Fund on January 16 said it would resume discussions for further disbursal of part of a $1.5 billion loan amid investor worries of heavy debt repayments. 

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

The rupee has declined 3.5 percent since a political crisis started in October. The political crisis had dented investor sentiment and delayed Sri Lanka’s borrowing plans.

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

The Colombo Stock Index ended 0.02 percent weaker at 5,989.90 yesterday.

 Turnover was Rs.442 million (US$ 2.48 million), nearly half of last year’s daily average of Rs.834 million. 

Foreign investors net sold Rs.82.5 million worth shares yesterday. They have been net sellers of Rs.2.3 billion worth of stocks so far this year and Rs.15.7 billion since the political crisis began on October 26, 2018.