Ranil’s reinstatement calms markets; Cabinet in focus

REUTERS: The rupee strengthened yesterday while bond yields dropped as a seven-week political crisis appeared to ebb after President Maithripala Sirisena reinstated the premier he had initially sacked in a widely criticised move. 

Ranil Wickremesinghe, who was sworn into office on Sunday, held discussions with Sirisena about forming a Cabinet and restoring stability in the island nation of 21 million people just off the southern coast of India. 

Wickremesinghe’s reinstatement, which is expected to end a political crisis that began in late October when he was surprisingly sacked, is seen as an embarrassment for the President. 

Yields on Sri Lanka’s dollar bonds due in 2022, which had risen more than 1% since the crisis started in October, fell 40 basis points to 7.6%. 

The rupee edged up to 179.60 per dollar from Friday’s close of 179.90/180.10. 

“The market has taken Wickremesinghe’s appointment positively. But investors will have to wait and watch whether the president and prime minister will get along with each other,” a currency dealer said, requesting anonymity as he was not authorised to speak to the media. 

The Colombo stock index ended up 0.08% at 6,067.63 on Monday. Turnover was Rs. 133.8 million, well below this year’s daily average of Rs. 821.6 million.

Foreigners were net sellers of a net Rs. 18.1 million ($ 100,723) worth of stocks on Monday. They have been net sellers of Rs. 10.6 billion since the political crisis began on 26 October. This year there have been Rs. 20 billion of outflows from stocks.

The bond market saw outflows of about Rs. 56 billion between 25 October and 14 December, Central Bank data showed. Year to date outflows from government securities were Rs. 148.2 billion, the latest data from the Bourse and Central Bank showed. 

The rupee, which traded slightly firmer in early trade, ended steady at 179.90/180.00 per dollar, compared with 179.90/180.10 the previous session. 

Sirisena had replaced Wickremesinghe with former President Mahinda Rajapaksa following differences over policy matters and other issues. However, Rajapaksa failed to win a parliamentary majority and resigned on Saturday as a government shutdown loomed. 

Sirisena had repeatedly said he would not reappoint Wickremesinghe as Prime Minister. However, he had to change his stance to gain parliamentary approval for a temporary budget that is required by 1 January. 

Preparations for a vote on account will begin as soon as Wickremesinghe names a Finance Minister, Treasury Secretary S.R. Attygala said. 

The vote on account has become mandatory after parliament approval for the budget for 2019 (January-December) was derailed following Wickremesinghe’s ouster in October.