Rupee, stocks end lower as foreign sell-off continues

REUTERS: The rupee closed weaker on Wednesday, hit by concerns over a lingering political crisis, as banks bought dollars to facilitate foreign capital outflows from rupee-denominated assets.

Credit rating agencies Fitch, and Standard & Poor’s downgraded Sri Lanka’s sovereign rating on Tuesday, citing refinancing risks and an uncertain policy outlook, after President Maithripala Sirisena’s sacking of his Prime Minister in October triggered a political crisis.

On Wednesday, Fitch downgraded Sri Lanka’s financial institutions and Sri Lanka Telecom, citing sovereign downgrade.

Foreigners sold a net Rs. 241.8 million ($ 1.35 million) worth of stocks on Wednesday, and they have been net sellers of Rs. 9.3 billion since the political crisis started on 26 October. The bond market saw outflows of about Rs. 34.2 billion between 25 October and 28 November, Central Bank data showed.

This year, there have been Rs. 18.7 billion of outflows from stocks and Rs. 123.2 billion from government securities, the latest data from the bourse and Central Bank data showed.

The rupee ended at 179.20/25 per dollar on Wednesday, compared with 179.00/20 in the previous session. It has weakened about 3.4% since the political crisis began. The currency fell 1.8% in November and 16.8% so far this year.

The rupee hit a record low of 180.85 per dollar on 28 November, surpassing its previous low of 180.50 hit the previous day.

Moody’s downgraded Sri Lanka on 20 November for the first time since it started rating the country in 2010, blaming the political turmoil for aggravating its already problematic finances.

The political paralysis remains the main concern of investors. While Mahinda 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. Although Rajapaksa was ousted via two confidence votes, he has refused to step down.

The Central Bank, on 14 November, 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 US interest rates.

Five-year government bond yields have risen 45 basis points since the political crisis unfolded on 26 October, while yields on Sri Lanka’s dollar bonds due in 2022 have risen by more than a percentage point to 8.13% since the crisis began.

The Colombo stock index fell 0.24% to 5,997.23 on Wednesday. It had risen 1.5% last week, recording its first weekly gain in four. It gained 1.1% in November and has declined 5.8% so far this year.

Stock market turnover was Rs. 614.7 million on Wednesday, less than this year’s daily average of Rs. 831.3 million.