Reuters: Shares fell on Wednesday to a more than one-year closing low, breaching a key psychological barrier of 6,000, as expectations of an interest rate hike continued to drag down the market ahead of the Central Bank’s policy review.

The Colombo stock index closed down 0.7% at 5,996.65, its lowest close since 15 March 2016.“The market came down mainly on margin calls,” said Dimantha Mathew, head of research, First Capital Equities Ltd.

“Investors are expecting a rate hike, so local investors are on the sidelines and only foreign investors are active.”

Sri Lanka’s Central Bank could raise its key policy rates in the coming months if it skips a chance to tighten at its second monetary policy review of the year on Friday, a Reuters poll showed, two weeks after the International Monetary Fund called for further tightening.

Turnover was boosted by foreign-buying in conglomerate John Keells Holdings Plc and stood at Rs. 1.05 billion ($ 6.9 million), well above this year’s daily average of Rs. 672 million.

The index has lost 1.8% since 7 March, when the IMF called for monetary policy tightening if credit growth or inflation do not abate.

The Bourse dipped into oversold territory on Wednesday, with the 14-day relative strength index at 26.758 points versus Tuesday’s 34.145, Thomson Reuters data showed. A level between 30 and 70 indicates the market is neutral.

Foreign investors net bought shares worth Rs. 414.6 million, raising the year-to-date net foreign inflow to Rs. 3.07 billion in equities.

The Treasury bill rates have risen between 33 to 77 basis points since 28 July, when the Central Bank last raised the key interest rates.

Shares in John Keells fell 2.1%, while Asiri Hospitals Plc dropped 3.8% and biggest listed lender Commercial Bank of Ceylon Plc fell 0.9%.

Rupee falls ahead of central bank rate review

Reuters: The rupee fell in thin trade on Wednesday as dollar demand from importers offset selling of the US currency by exporters ahead of a decision on interest rates by the Central Bank.

The bank meets to discuss monetary policy later this week and could raise key policy rates then or in the coming months, a Reuters poll showed, two weeks after the International Monetary Fund called for further tightening.

Rupee forwards were active, with two-week forwards ending at 152.40/60 per dollar, from Tuesday’s close of 152.40/45.

“Some exporter sales helped prevent a steeper fall,” said a currency dealer, asking not to be named. “We hope the Central Bank will raise the interest rates to help ease the pressure on the currency.”

Rising imports and outflow from rupee bond sales by foreign investors, however, are expected to exert pressure on the currency, dealers said.

The Central Bank raised the spot rupee reference rate by 25 cents to 151.60 on Monday. It has been preventing spot rupee trades below 151.35 per dollar since 8 March.

Central Bank officials were not available for comment.

Foreign investors net sold government securities worth Rs. 1.41 billion ($ 9.28 million) in the week ended 15 March. This came after two weeks of net inflows.

They have net sold Rs. 63.3 billion of such instruments so far this year.

The rupee has fallen 1.31% so far this year, and dealers say they expect the currency to weaken 6-8% in 2017. It lost 3.9% against the dollar last year.