Rupee, stocks end largely flat after reserve ratio cut

Saturday, 23 February 2019 00:00 - - {{hitsCtrl.values.hits}}

REUTERS: The rupee and the main stock index ended little changed on Friday after the Central Bank surprisingly reduced commercial banks’ statutory reserve ratio (SRR) by 100 basis points with effect from 1 March, market sources said.

The Central Bank reduced commercial banks’ statutory reserve ratio (SRR) by 100 basis points on Friday before the markets open in a surprise move to increase liquidity and spur credit growth as policymakers struggle to boost a faltering economic growth following a political crisis and a recent rate increase.

The rupee ended at 179.40/80, compared with Thursday’s close of 179.45/65. The local currency posted a loss of 0.4% this week after a similar dive in the previous week due to high dollar demand from importers and outflows from the stock market.

The rupee climbed 1.8% so far this year as exporters converted dollars and foreign investors purchased government securities amid stabilising investor confidence in Sri Lanka after the country repaid a $ 1 billion sovereign bond in mid-January.

The bond market saw inflows of Rs. 3.3 billion in the week ended 13 February, recording its fourth straight weekly inflow, the latest Central Bank data showed.

Worries over heavy debt repayment after a 51-day political crisis that resulted in a series of credit rating downgrades dented investor sentiment as the country is struggling to repay its foreign loans. Sri Lanka has raised its borrowing limit for dollar-denominated bonds to $ 3 billion and chosen seven lead managers to tap the international market as soon as possible, three Government sources said on Tuesday.

The rupee dropped 16% in 2018, and was one of the worst-performing currencies in Asia due to heavy foreign outflows.

The Colombo Stock Exchange index ended 0.02% weaker at 5,837.72 on Friday, its lowest close since 26 October 2018, and marked its fifth straight session of declines.

The benchmark index dropped 1.6% during the week, recording its third straight weekly fall. It declined about 1% in January. The turnover was Rs. 489.3 million ($ 2.73 million), near a half of last year’s daily average of Rs. 834 million.

Foreign investors were net sellers of Rs. 300.2 million worth of shares on Friday, extending the year-to-date net foreign outflow to Rs. 5.5 billion worth of stocks, and Rs. 18.9 billion since the political crisis began on 26 October 2018.