Rupee ends weaker on importer, bank dollar demand; stocks at 6-week low

Reuters: The rupee ended weaker on Tuesday as importer dollar demand and continued outflows of foreign funds from government bonds and stock markets due to political uncertainty dented investor sentiment. The bourse fell to a six-week low. 

The Colombo Stock Index fell 0.51% to settle at 5,992.36, its lowest close since 28 November 2018, as worried investors awaited political cues after the last quarter’s turmoil. The bourse lost 5% in 2018. 

Turnover was Rs. 933 million ($5.11 million), more than last year’s daily average of Rs. 834 million. 

Foreign investors were net sellers of Rs. 124.8 million worth of shares on Tuesday. They have been net sellers of Rs. 13.9 billion worth of stocks since a political crisis began on 26 October 2018. The bond market saw outflows of Rs. 74.3 billion between 25 October 2018 and 2 January, the latest Central Bank data showed. 

Last year through 26 December, foreign investors pulled a net Rs. 22.8 billion out of stocks, and Rs. 159.8 billion from government securities, according to bourse and Central Bank showed data. 

The rupee ended at 182.50/70 on Tuesday, compared with 182.30/40 in the previous session, market sources said. On Thursday, the rupee had fallen to an all-time low of 183 against the dollar. The rupee fell 19% in 2018, making it one of the worst-performing currencies in Asia, Refinitiv Eikon data showed, due to heavy foreign outflows. 

The rupee has declined about 5.2% since the political crisis started. The Central Bank said last week it would stick to an exchange rate policy of cautious intervention in times of excessive volatility in the forex market. 

That policy is designed to maintain a competitive exchange rate and support the rebalancing of the current account, thereby supporting a gradual build-up of reserves, Central Bank Chief Indrajit Coomaraswamy said on Wednesday, unveiling economic policies for 2019. 

President Maithripala Sirisena appointed a Cabinet of Ministers from his rival party on 21 December 2018 after he was forced to reinstate Ranil Wickremesinghe as Prime Minister, 51 days after he was sacked. The crisis is expected to ease, though tense relations between the two men could cause fiscal problems, analysts say. Parliament has approved Rs. 1.77 trillion ($9.39 billion) to meet the first four months of expenditure in 2019, averting a Government shutdown from 1 January. 

Sri Lanka plans to increase government spending by 13.2% from last year to Rs. 4.47 trillion ($24.51 billion) in 2019, the Finance Ministry said on Tuesday. 

Credit agencies Fitch and S&P downgraded Sri Lanka’s sovereign rating in early December, citing refinancing risks and an uncertain policy outlook.