Stock market little changed ahead of policy rate decision

Reuters: Shares ended little changed on Wednesday ahead of the Central Bank’s policy rate decision on Friday.

The main stock index closed near its more than two-month closing low hit on Monday, down 0.05% at 7,114.83.

The Central Bank’s monetary policy rate announcement is scheduled on Friday at 1230 GMT.

“There was no real investor interest in the market,” said Dimantha Mathew, a Research Manager at First Capital Equities Ltd., adding the market moved sideways as there was no clear direction.

The weak rupee curbed investor risk appetite and rising market interest rates also hit sentiment, with t-bill yields at their highest level in more than five months at the last auction.

The rupee ended marginally higher due to inward remittances ahead of the Hajj, though importer demand for the greenback limited gains, dealers said. It has declined 4.4% since the Central Bank effectively floated the currency on 4 September.

Turnover was Rs. 747.6 million ($5.31 million), compared with the daily average of Rs. 1.11 billion. The turnover has been roughly half of this year’s daily average since 31 August, stock exchange data showed.

Analysts said investors were waiting to see how the Government would bridge the budget deficit and where the revenue would come from, in its November Budget.

The IMF last week said the fiscal deficit is likely to range between 5.5% and 6% in 2015, much higher than an official target of 4.4% due to falling Government revenues.

Foreign investors were net buyers of Rs. 155.7 million worth of shares on Wednesday, but they have been net sellers of Rs. 2.8 billion so far this year.

Shares of Nestle Lanka Plc fell 1.35% and John Keells Holdings Plc dropped 0.74%.

Both stock and currency markets will be closed on Thursday for the Hajj festival holiday. Normal trading will resume on Friday.

Rupee ends slightly higher on inward remittances

Reuters: The rupee ended marginally higher on Wednesday due to inward remittances ahead of the Hajj, though gains were capped by importer demand for dollars, dealers said.

Exporters held on to the greenback on expectations of further depreciation, they added.

The spot rupee ended at 140.90/95 per dollar, compared with Tuesday’s close of 140.95/141.05. It has fallen 4.4% since the Central Bank effectively floated it on 4 September.

“There were some inflows due to Hajj. Importer dollar demand was also there,” said a currency dealer, asking not to be named. “But exporters were not selling.”

Dealers said the rupee is under pressure, and regulations need to be brought in to make exporters convert their export proceeds.

The market expects no impact on the rupee from the Central Bank’s monetary policy rate announcement scheduled for Friday.

On Tuesday, the rupee hit a record low of 141.00 in early trade before recovering as a State bank, through which the Central Bank usually directs the market, sold dollars to limit the fall.

The market expects the currency to fall further in the short term if the Central Bank fails to tighten interest rates or the country does not see strong inflows soon, some dealers said.

The rupee float has won a thumbs-up from rating agencies and economists, but more reforms will be needed to support the currency and conserve the Central Bank’s modest reserves.

In a bid to curb dollar outflows on vehicle purchases, the Central Bank on 15 September imposed a 70% limit on loans and advances for vehicles, a move seen aimed at easing demand for credit and stemming dollar outflows.

Both stock and currency markets will be closed on Thursday for the Hajj festival holiday. Normal trading will resume on Friday.