Rupee hits record low; stocks resilient

REUTERS: The Sri Lankan rupee hit a record low for a fourth straight session on Monday, 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 180.40 per dollar on Monday, surpassing its previous low of 179.95 hit on Friday. 

 Moody’s downgraded Sri Lanka on 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 newly appointed 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. 

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 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. 

The rupee ended at 180.20/40 per dollar on Monday, compared with 179.90/180.40 in the previous session. It has weakened around 4% since the political crisis began on 26 October and more than 17.3% so far this year. 

Foreigners bought a net Rs. 17.1 million ($95,000) worth of stocks on Monday, but they have been net sellers of Rs. 7.9 billion since the political crisis started on 26 October. The bond market saw outflows of about Rs. 29 billion between 25 October and 21 November, 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 rose about 45 basis points on Monday. 

The Colombo stock index rose 0.22% to 5,943.07 on Monday. It declined 0.41% last week following a 0.39% fall previous week. It has fallen 6.7% so far this year. 

Stock market turnover was Rs. 736.7 million on Monday, less than this year’s daily average of Rs. 835.3 million.