Rupee hits record low after Moody’s downgrade, IMF loan delay

REUTERS: The rupee fell to an all-time low of 179 per dollar on Wednesday, a day after Moody’s downgraded the country’s credit rating, as a political crisis worsens a rout in the currency. 

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 (IMF) to delay discussions on its loan tranche to Sri Lanka. 

The political uncertainty remained the main concern of investors a day after President Maithripala Sirisena asked an all-party meeting to hold a third vote on a no confidence motion against Prime Minister Mahinda Rajapaksa after rejecting the first two motions passed by a majority in the Parliament, deepening the country’s political crisis. 

The Central Bank last week unexpectedly raised its key policy rates in a move aimed at defending a faltering rupee as foreign capital outflows picked up amid an escalating political crisis and rising US interest rates.  The rupee hit a fresh low of 179 per dollar on Wednesday, surpassing its previous low of 177.35, hit on Monday. Sri Lanka’s markets were closed for a holiday on Tuesday. 

The currency ended at 178.70/179.20 per dollar on Wednesday, compared with 177.30/50 at the previous close. It has weakened more than 3.3% since the political crisis began on 26 October and more than 16.4% so far this year. 

Foreigners bought a net Rs. 10.2 million worth of stocks on Wednesday, but they have offloaded equities worth Rs. 7.7 billion since the political crisis started on 26 October. 

The bond market saw outflows of about Rs. 22.9 billion between 25 October and 7 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 and bourse, Central Bank data showed. 

The five-year bond yields rose about 25 basis points on Wednesday, market sources said. 

The Colombo stock index ended up 0.04% at 5,950.19 on Wednesday. It declined 0.39% last week, and has fallen 6.5% so far this year. 

Stock market turnover was Rs. 594.1 million ($ 3.33 million) on Wednesday, less than this year’s daily average of Rs. 836.9 million. 

Stock, bond and foreign exchange markets will be closed on Thursday for a public holiday.