Rupee hits record low on Moody’s downgrade, political uncertainty

REUTERS: The rupee fell to an all-time low of 179.95 per dollar on Friday, as Moody’s downgrade of the country’s credit rating in the wake of a political crisis saw more investors dump rupee-denominated assets. 

Moody’s downgraded Sri Lanka on Tuesday for the first time since it started rating the country in 2010, blaming the political crisis for aggravating already problematic finances. The downgrade coincided with a decision by the International Monetary Fund to delay discussions on its loan tranche to Sri Lanka. 

Sri Lanka’s political crisis took another turn on Friday as all the lawmakers backing Sirisena-appointed Prime Minister Mahinda Rajapaksa, who has refused to resign despite losing two confidence votes in the Parliament, walked out of Parliament in the face of another defeat in a Parliament vote. 

The political uncertainty remained the main concern of investors due to failure of Rajapaksa and President Maithripala Sirisena in obtaining the Parliament majority for their new Government, while deposed Prime Minister Ranil Wickremesinghe’s coalition, which claims it has the Parliament majority, is denied an opportunity of forming a government. 

The Central Bank last week unexpectedly raised its key policy rates, in a move aimed at defending a faltering rupee as foreign capital outflows pick up amid an escalating political crisis and rising US interest rates. 

The rupee hit a fresh low of 179.95 per dollar on Friday, surpassing its previous low of 179.00 hit on Wednesday. Sri Lanka’s markets were closed on Thursday for a holiday. 

 The currency ended at 179.90/180.40 per dollar on Friday, compared with 178.70/179.20 in the previous session. It has weakened more than 3.8% since the political crisis began on 26 October and more than 17% so far this year. 

Foreigners sold a net Rs. 51.4 million ($286,511) worth of stocks on Wednesday, extending the outflow worth Rs. 7.8 billion since the political crisis started on 26 October.

The bond market saw outflows of about Rs. 22.9 billion between 25 October and 14 November, Central Bank data showed. This year, there have been Rs. 17.3 billion of outflows from stocks and Rs. 112.8 billion from Government securities, bourse and Central Bank data showed. 

The five-year bond yields have risen about 45 basis points since the political crisis unfolded. 

The Colombo stock index fell 0.34% to 5,929.98 on Friday. It declined 0.41% this week following a 0.39% fall last week. It has fallen 6.9% so far this year. 

Stock market turnover was Rs. 580.8 million on Friday, less than this year’s daily average of Rs. 835.8 million.