Rupee hits record low on foreign outflows

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

Sri Lankan President Maithripala Sirisena appointed a 30-member Cabinet yesterday, retaining control over the police while they investigate an alleged plot to kill him that triggered a row with the premier and led to a lengthy political crisis.

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, a 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 was 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.1.8 billion (US$9.96 million) worth of stocks yesterday. They have been net sellers of Rs.13.5 billion since the political crisis began on Oct. 26. The bond market saw outflows of about Rs.56 billion between Oct. 25 and Dec. 14, Central Bank data showed. 

The rupee ended at 181.10/20 per dollar, compared with 180.50/70 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.22.9 billion of outflows from stocks and Rs.148.2 billion from government securities, the latest data from the bourse and Central Bank showed.

The rupee had touched a record low of 181.00 to the dollar in the early trade yesterday. It has weakened about 4.1 percent since the political crisis began. The currency dropped 1.8 percent in November, and has lost 17.8 percent this year. 

Moody’s downgraded Sri Lanka on Nov. 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 45 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 0.30 percent to 7.7 percent on Thursday.

The Colombo stock index ended 0.57 percent weaker at 6,016.36 yesterday. Turnover was Rs.3.3 billion, four times this year’s daily average of Rs.844.7 million.