Rupee hits record low; extends year to date fall to near 19%

Reuters: The Sri Lankan rupee fell to a record low on Thursday amid dollar demand by State banks and continued outflows of foreign funds, mainly from Government bonds, as political uncertainty dented investor sentiment. 

The rupee hit an all-time low of 182.35 to the dollar in early trade, surpassing its previous record of 181.85 marked in the prior session. It has weakened about 5% since Sri Lanka’s political crisis began on 26 October, and lost 18.7% so far this year. 

The rupee ended at 182.10/60 per dollar, compared with 181.80/182.00 in the previous session. 

President Maithripala Sirisena appointed the Cabinet of Ministers from his rival party last week, after he was forced to reinstate Ranil Wickremesinghe as Prime Minister, 51 days after he was sacked. 

The political crisis was expected to ease, though uneasy relations between the two men could cause fiscal problems, analysts have said. Parliament approved Rs. 1.77 trillion ($9.39 billion) to meet four months of expenditures and avert a Government shutdown from 1 January.  The Colombo stock index ended 0.02% weaker at 6,018.19 on Thursday. Turnover was Rs. 338.1 million, less than half of this year’s daily average of Rs. 840 million. 

Foreigners were net sellers of Rs. 6.4 million of stocks on Thursday. They have been net sellers of Rs. 13.3 billion since the political crisis began.

 The bond market saw outflows of about Rs. 56.7 billion between 25 October and 19 December, Central Bank data showed. 

Five-year Government bond yields have risen 35 basis points since the political crisis began. 

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