Rupee hits record low on Moody’s downgrade, political uncertainty

REUTERS - The Sri Lankan rupee fell to an all-time low of 179.95 per dollar yesterday, as Moody’s downgrade of the country’s credit rating in the wake of a political crisis saw more investors dump rupee-denominated assets.

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.

Sri Lanka’s political crisis took another turn yesterday as all the lawmakers backing newly appointed Prime Minister Mahinda Rajapaksa, who has refused to resign despite losing two confidence votes in the parliament, walked out the parliament in the face of another defeat in a parliament vote.

The political uncertainty remained the main concern of investors due to failure of Rajapaksa and President Maithripala Sirisena in obtaining the parliament majority for their new government, while deposed Prime Minister Ranil Wickremesinghe’s coalition, which claims it has the parliament majority, is denied an opportunity of forming a government.

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 179.95 per dollar yesterday, surpassing its previous low of 179.00 hit on Wednesday. Sri Lanka’s markets were closed on Thursday for a holiday.

The currency ended at 179.90/180.40 per dollar yesterday, compared with 178.70/179.20 in the previous session. It has weakened more than 3.8 percent since the political crisis began on Oct. 26 and more than 17 percent so far this year.

Foreigners sold a net Rs.51.4 million (US$286,511) worth of stocks on Wednesday, extending the outflow worth Rs.7.8 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. 14, 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 have risen about 45 basis points since the political crisis unfolded.

The Colombo stock index fell 0.34 percent to 5,929.98 yesterday. It declined 0.41 percent this week following a 0.39 percent fall last week. It has fallen 6.9 percent so far this year. Stock market turnover was Rs.580.8 million yesterday, less than this year’s daily average of Rs.835.8 million.