Shares recover from 4-month closing low; rupee eases

Reuters: Sri Lankan shares rose on Thursday after declining for eight straight sessions to a four-month closing low in the previous day, as investors picked up beaten-down stocks ahead of an increase in liquidity, analysts said. 

The rupee closed weaker with investors waiting for directions from next week’s budget and the outcome of talks between Government authorities and the IMF, market sources said. The Colombo Stock Exchange index closed 0.28% higher at 5,816.29, edging up from its lowest close since 25 October hit on Wednesday. 

The benchmark index declined 2.9% in February in its second straight monthly fall. Turnover was Rs. 2.12 billion ($11.78 million), more than twice last year’s daily average of Rs. 834 million. 

Sri Lanka has asked the IMF to extend a $1.5 billion loan by another year and relax its tight spending targets ahead of key elections, two Government sources close to the negotiations told Reuters on Tuesday. The rupee fell 0.61% to 179.95/180.15 per dollar, compared with Wednesday’s close of 179.85/95. 

Finance Minister Mangala Samaraweera will present the 2019 Budget on 5 March. Traders and investors are waiting to see how the market would react to the Central Bank’s surprise announcement on Friday of reducing commercial banks’ statutory reserve ratio (SRR) by 100 basis points, after the effective date of 1 March, the sources said. 

The decision will increase liquidity by around Rs. 60 billion, the Central Bank said. Foreign investors exited from government securities for the first time in five weeks in the week ended 20 February, with net sales of Rs. 1.5 billion, the Central Bank’s latest data showed. 

The rupee has climbed 1.5% so far this year as exporters converted dollars and foreign investors purchased government securities amid stabilising investor confidence after the country repaid a $1 billion sovereign bond in mid-January. 

Worries over heavy debt repayment after the 51-day political crisis that resulted in a series of credit rating downgrades dented investor sentiment as the country struggled to repay its foreign loans. The rupee dropped 16% in 2018, and was one of the worst-performing currencies in Asia due to heavy foreign outflows.