Reuters: Shares fell in line with regional bourses to close at their lowest in more than two weeks on Thursday, as a 25-basis-point interest rate increase by the US Federal Reserve and hints of more to come next year kept investors on tenterhooks.

The Fed signalled a faster pace of increases in 2017 as central bankers adapted to incoming President Donald Trump’s promises of tax cuts, spending and deregulation. Partly as a result of the changes anticipated under Trump, the Fed sees three rate hikes next year instead of the two foreseen as of September.

The Colombo stock index ended 0.21% weaker at 6,285.53, its lowest close since 30 November.

“Market was on a very slow downtrend,” said Dimantha Mathew, Head of Research, First Capital Equities Ltd.

“Bond and equity markets have adjusted for the Fed rate hike. We have seen outflows in the last three months. But going forward, we may go into a period of economic and political uncertainty because of a large number of bonds maturing in the first half on 2017 and local elections, plus a referendum coming up next year.”

The rate hike could increase borrowing costs of foreign capital for Sri Lanka and force the coalition government to borrow locally at higher interest rates, which could also see some outward movement of money from equities, analysts said.

The Government is considering a change in the country’s constitution next year which requires a referendum.

The two main parties in the Coalition Government are expected to contest separately in the upcoming local government election, which the administration of President Maithripala Sirisena has postponed since mid-2015 citing delays in a new electoral process.

Foreign investors bought a net Rs. 44.7 million ($301,213) worth of shares on Thursday, with the year-to-date net foreign inflow in shares declining to Rs. 514.7 million.

Turnover was Rs. 361.8 million, less than half this year’s daily average of Rs. 749 million.

Shares of John Keells Holdings Plc fell 2%, while top mobile phone operator Dialog Axiata lost 1.9%.

Rupee falls as CB raises reference rate

Reuters: The rupee fell on Thursday as the Central Bank raised the spot reference rate further, a day after the US Federal Reserve increased interest rates by 25 basis points, dealers said.

Rupee forwards were active with spot-next forwards closing at 149.45/55 per dollar, compared with Wednesday’s close of 148.95/149.05.

“The Central Bank increased the spot reference rate by 30 cents to 149.10, probably after the Fed rate hike,” a currency dealer said, asking not to be named.

The move came a day after the Central Bank raised the spot reference rate by 10 cents. Officials from the Central Bank were not available for comments. The spot rupee was hardly traded, but was quoted at 148.70/95.

The rupee usually rises in December ahead of Christmas and New Year due to remittances from expatriates, but dealers said the currency was expected to face pressure this time due to higher dollar demand from importers following the Fed rate hike.

“The immediate reaction will be capital outflow,” said Danushka Samarasinghe, head of research at Softlogic Stockbrokers, talking about the impact of the Fed rate hike.

“The Fed rate hike will also raise the Government’s foreign borrowing cost in the short term. This will compel the government to borrow more locally and the move could raise market interest rates. If that happens, there could be outward movement of money from equity markets as well.”

Foreign investors net sold Rs. 45.4 billion ($305.6 million) worth of Government securities in the seven weeks ended 7 December.

The rupee is expected to be under pressure on fears that US President-elect Donald Trump’s economic policies will lead to a stronger greenback and trigger foreign fund outflows, some dealers said.