Rupee hits low on political uncertainty; ends higher on bank dollar sales

REUTERS: The rupee hit a record low for a sixth straight session on Wednesday as investors dumped rupee-denominated assets after a credit rating downgrade and a delay in an IMF loan discussion in the wake of a political crisis. 

It ended firmer due to Central Bank greenback selling to prop up the currency. 

The rupee hit a fresh low of 180.85 per dollar, surpassing its previous low of 180.50 hit on Tuesday. It ended at 180.50/90 per dollar on Wednesday, compared with 180.40/90 in the previous session. 

It has weakened around 3.6% since the political crisis began on 26 October and 17% so far this year.

Moody’s downgraded Sri Lanka last week for the first time since it started rating the country in 2010, blaming the political turmoil for aggravating its already problematic finances. 

The downgrade coincided with a decision by the International Monetary Fund to delay discussions on its loan tranche to Sri Lanka. 

The political standoff took another turn on Friday when the lawmakers who back the disputed Prime Minister Mahinda Rajapaksa – who has refused to resign despite losing two confidence votes in Parliament – walked out of the Chamber in the face of another defeat there. 

On Monday, lawmakers who back Rajapaksa boycotted the Parliament session. Rajapaksa and the new Government have not been recognised by any foreign countries because they have not proven their Parliament majority. 

The political paralysis remains the main concern of investors. While Rajapaksa and President Maithripala Sirisena have failed to win support in Parliament for their new Government, deposed Prime Minister Ranil Wickremesinghe’s coalition, which claims it does have majority support in Parliament, has not been allowed to try to form a Government. 

The political impasse could be set to drag on longer after President Sirisena said on Sunday he would not reinstate Wickremesinghe as Prime Minister even if he was able to prove his majority in Parliament. 

The Central Bank on 14 November unexpectedly raised its main interest rates to defend the rupee, which has faltered as foreign capital outflows pick up due to the domestic crisis as well as rising US interest rates. 

Foreigners sold a net Rs. 201.9 million ($ 1.13 million) worth of stocks on Tuesday, and they have been net sellers of Rs. 7.9 billion since the political crisis started. The bond market saw outflows of about Rs. 29 billion between 25 October and 21 November, Central Bank data showed. 

This year, there have been Rs. 17.3 billion of outflows from stocks and Rs. 118.8 billion from Government securities, the latest data from the bourse and Central Bank data showed. 

Five-year Government bond yields have risen 70 basis points since the crisis unfolded on 26 October. 

The Colombo stock index rose 0.16% to 5,981.16 on Wednesday. It declined 0.41% last week following a 0.39% fall previous week. It has fallen 6.1% so far this year. 

Stock market turnover was Rs. 409.3 million on Wednesday, less than half of this year’s daily average of Rs. 831.6 million.