Rupee ends at 7-month low; foreign fund outflow weighs

Reuters: The rupee fell on Wednesday to its seven-month closing low as foreign fund outflows after the Central Bank cut key monetary policy rates weighed on the currency while shares closed steady. 

Foreign investors sold net Rs. 12.9 billion worth of government securities in the week ended 21 August, the worst weekly outflow in eight months, and the year-to-date net foreign outflow was Rs. 40.9 billion, Central Bank data showed. 

The surprise rate cut on Friday is expected to accelerate the outflow, currency dealers say. The central Bank lowered rates for the second time in four months on Friday to boost sluggish growth after tourism and investments plummeted following deadly Easter Sunday bomb attacks by Islamist militants. 

The rupee ended 0.3% weaker at 180.20/50 per dollar, compared with Tuesday’s close of 179.75/85. The currency, however, is up 1.3% this year. 

The rupee has eased 2.2% this month as foreign investors sold government bonds in line with exit from other emerging markets.  Central Bank Governor Indrajit Coomaraswamy on Friday said the Bank was ready to cope with the outflow of total $700 million foreign funds invested in Sri Lankan government securities. Exit of some funds had resulted in some pressure on the local currency. 

The Central Bank in its monetary policy rate statement said the depreciation pressure was expected to be short-lived. T-bill rates fell between 9 basis points and 21 basis points at the weekly bill auction on Wednesday. 

Meanwhile, the main benchmark stock index ended 0.03% firmer at 5,910.92. It posted a gain of 0.07% last week. 

Sri Lankan investors have been mainly in a wait-and-see mode since the main Opposition party named a hardline former Defence Chief as its presidential candidate. 

The market has been awaiting details of former Defence Chief Gotabaya Rajapaksa’s campaign as well as the identity of the ruling party’s presidential candidate, who has yet to be announced, dealers said. 

So far this year, the stock index has dropped about 2.3%.  Equity market turnover was Rs. 657.1 million ($3.65 million) on Wednesday, slightly above this year’s daily average of about Rs. 647.9 million so far. Last year’s daily average was Rs. 834 million. 

Foreign investors sold a net Rs. 21.6 million worth of shares on Wednesday, extending the year to date net foreign outflow to Rs. 1.2 billion worth of equities, according to index data.