Rupee plumbs fresh low as foreign outflows continue

COLOMBO (Reuters) - The Sri Lankan rupee touched a record low in early trade on 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. 

The rupee had touched a record low of 181.25 to the dollar in the early trade yesterday, surpassing its previous low of 181.00 hit the previous day. It has weakened about 4.5 percent since the political crisis began. The currency dropped 1.8 percent in November, and has lost 18.1 percent this year. 

Sri Lankan President Maithripala Sirisena appointed a 30-member cabinet on Thursday, 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 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. 

Sri Lanka’s parliament passed a Rs.1.77 trillion (US$9.39 billion) vote on account yesterday to meet the expenditures of first four months to avert a government shutdown from January 1. 

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 the 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 Rs.143 million (US$ 790,055) worth of stocks yesterday. They have been net sellers of Rs.13.7 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 181.30/50 per dollar, compared with 181.10/20 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.23.1 billion of outflows from stocks and Rs.148.2 billion from government securities, the latest data from the bourse and Central Bank showed. 

Moody’s downgraded Sri Lanka on Nov. 20 for the first time since it started rating the country in 2010. 

Five-year government bond yields have risen 33 basis points since the political crisis began, while yields on Sri Lanka’s dollar bonds due in 2022, which have risen around one percentage point to 8.0 percent through Dec. 14, fell 0.76 percent to 7.9 percent yesterday. 

The Colombo stock index ended 0.18 percent weaker at 6,005.65 yesterday. Turnover was Rs. 494.1 million, half of this year’s daily average of Rs.843.2 million.