Rupee hits record low on political uncertainty, economic woes

(Colombo) REUTERS: The Sri Lankan rupee hit a record low for a fifth straight session yesterday, as investors dumped currency-denominated assets following a credit rating downgrade and a delay in an IMF loan discussion in the wake of a political crisis. 

The rupee hit a fresh low of 180.50 per dollar, surpassing its previous low of 180.40 hit on Monday.

Moody’s downgraded Sri Lanka last Tuesday for the first time since it started rating the country in 2010, blaming the political turmoil for aggravating its 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 standoff took another turn on Friday when the lawmakers who back the disputed Prime Minister, Mahinda Rajapaksa - who has refused to resign despite losing two confidence votes in parliament - walked out of the chamber in the face of another defeat there.

On Monday, lawmakers who back Rajapaksa boycotted the parliament session. Rajapaksa and the new government have not been recognised by any foreign countries because they have not proven their parliament majority. 

 The political paralysis remains the main concern of investors. While Rajapaksa and President Maithripala Sirisena have failed to win support in parliament for their new government, the deposed Prime Minister Ranil Wickremesinghe’s coalition, which claims it does have majority support in parliament, has not been allowed to try to form a government.

 The political impasse could be set to drag on longer after President Sirisena said on Sunday he would not reinstate Wickremesinghe as Prime Minister even if he was able to prove his majority in parliament.

The central bank on Nov. 14 unexpectedly raised its main interest rates to defend the rupee, which has faltered as foreign capital outflows pick up due to the domestic crisis as well as rising U.S. interest rates.

The rupee ended at 180.40/90 per dollar yesterday, compared with 180.20/40 in the previous session. The decline was limited due to moral suasion by the Central Bank. It has weakened around 4 percent since the political crisis began on Oct. 26 and more than 17.3 percent so far this year.

Foreigners sold a net Rs.52.9 million (US$293,725.71) worth of stocks yesterday, and they have been net sellers of Rs.7.9 billion since the political crisis started on Oct. 26. The bond market saw outflows of about Rs.29 billion between Oct. 25 and Nov. 21, Central Bank data showed.

This year, there have been Rs.17.3 billion of outflows from stocks and Rs.118.8 billion from government securities, the latest data from the bourse and Central Bank 
data showed.

Five-year government bond yields have risen 85 basis points since the crisis unfolded on Oct 26.

 The Colombo stock index rose 0.48 percent to 5,971.41 yesterday. It declined 0.41 percent last week following a 0.39 percent fall previous week. It has fallen 6.3 percent so far this year.

Stock market turnover was Rs. 460.8 million yesterday, less than this year’s daily average of Rs.833.6 million.