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Rupee ends slightly weaker on economic woes

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REUTERS: The rupee closed marginally weaker on Thursday as investors dumped rupee-denominated assets on a credit rating downgrade and a delay in an IMF loan discussion in the wake of a political crisis. 

The rupee hit a record low of 180.85 per dollar on Wednesday, surpassing its previous low of 180.50 hit on Tuesday. 

It ended at 179.70/180 per dollar on Thursday, compared with 179.50/90 in the previous session. It has weakened around 3.7% 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 Thursday as the Parliament cut the budget of the Prime Minister’s Office, a move designed to hinder disputed Premier Mahinda Rajapaksa whose supporters boycotted the vote in the latest twist in a weeks-long political stalemate. 

The new Government has 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, the 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 U.S. interest rates. 

Foreigners sold a net Rs. 143.1 million ($ 797,214.5) worth of stocks on Thursday, and they have been net sellers of Rs. 8.2 billion since the political crisis started on 26 October. 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. 17.7 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 60 basis points since the crisis unfolded on 26 October. 

The Colombo stock index rose 0.19% to 5,992.70 on Thursday. It declined 0.41% last week following a 0.39% fall the previous week. It has fallen 5.9% so far this year.

Stock market turnover was Rs. 745.9 million on Thursday, less than this year’s daily average of Rs. 831.2 million. 

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