Rupee hits record low after Moody’s downgrade, IMF loan delay

(Colombo) REUTERS: The Sri Lankan rupee fell to an all-time low of 179.00 per dollar yesterday, a day after Moody’s downgraded the country’s credit rating, as a political crisis worsens a rout in the currency.

Moody’s downgraded Sri Lanka on Tuesday for the first time since it started rating the country in 2010, blaming the political crisis for aggravating already problematic finances.

The downgrade coincided with a decision by the International Monetary Fund to delay discussions on its loan tranche to Sri Lanka.

The political uncertainty remained the main concern of investors a day after President Maithripala Sirisena asked an all-party meeting to hold a third vote on a no-confidence motion against Prime Minister Mahinda Rajapaksa after rejecting the first two motions passed by a majority in the parliament, deepening the country’s political crisis.

The Central Bank last week unexpectedly raised its key policy rates, in a move aimed at defending a faltering rupee as foreign capital outflows pick up amid an escalating political crisis and rising U.S. interest rates.

The rupee hit a fresh low of 179.00 per dollar yesterday, surpassing its previous low of 177.35 hit on Monday. Sri Lanka’s markets were closed for a holiday on Tuesday.

The currency ended at 178.70/179.20 per dollar yesterday, compared with 177.30/50 at previous close. It has weakened more than 3.3 percent since the political crisis began on Oct. 26 and more than 16.4 percent so far this year.

Foreigners bought a net Rs.10.2 million worth of stocks yesterday. But they have offloaded equities worth Rs.7.7 billion since the political crisis started on Oct. 26.

The bond market saw outflows of about Rs.22.9 billion between Oct. 25 and Nov. 7, Central Bank data showed. This year, there have been Rs.17.3 billion of outflows from stocks and Rs.112.8 billion from government securities, bourse and Central Bank data showed.

The 5-year bond yields rose about 25 basis points yesterday, market sources said.

The Colombo stock index ended up 0.04 percent at 5,950.19 yesterday. It declined 0.39 percent last week and has fallen 6.5 percent so far this year.

Stock market turnover was Rs.594.1 million (US$3.33 million) yesterday, less than this year’s daily average of Rs.836.9 million.

Stock, bond and foreign exchange markets will be closed today for a public holiday.