Rupee weakens to over 7-month closing low as foreigners exit bonds

Reuters: The rupee fell to its lowest close in more than seven months on Wednesday, due to continued foreign fund outflows from Government securities after a surprise rate cut last month. 

Foreign investors sold net Rs. 12.3 billion worth of Government securities in the week ended 28 August, the second-worst weekly outflow in eight months. 

They offloaded Government securities worth of Rs. 25.2 billion in the two weeks ended on 28 August, data showed, extending the year-to-date net foreign outflow to Rs. 53.2 billion, Central Bank data showed. 

A surprise rate cut on 23 August has accelerated the outflow, currency dealers say. The Central Bank lowered rates for the second time in four months to boost sluggish growth after tourism and investments plummeted following deadly Easter Day bomb attacks by Islamist militants. 

The rupee ended 0.2% weaker at 180.45/75 per dollar, its lowest since 29 January. It closed at 180.10/30 on Tuesday. The currency is up 1.2% this year. 

The rupee eased 1.5% in August as foreign investors sold Government bonds in line with exit from other emerging markets. 

Central Bank Governor Dr. Indrajit Coomaraswamy after the policy rate cut on 23 August said the bank was ready to cope with the outflow of total $700 million foreign funds invested in Sri Lankan Government securities. Exit of some funds had resulted in some pressure on the local currency. 

The Central Bank in its monetary policy rate statement said the depreciation pressure was expected to be short-lived. 

Meanwhile, the main benchmark stock index ended 0.37% weaker at 5,861.54. It fell 0.15% last week and 0.8% in August. 

Sri Lankan investors have been mainly in a wait-and-see mode since the main Opposition party named a hardline former Defence Chief as its presidential candidate. 

The market has been awaiting details of former Defence Chief Gotabaya Rajapaksa’s campaign as well as the identity of the ruling party’s presidential candidate, who has yet to be announced, dealers said. 

So far this year, the stock index has dropped about 2.7%. 

Equity market turnover was Rs. 720.9 million ($4.01 million) on Wednesday, more than this year’s daily average of about Rs. 651.7 million so far. Last year’s daily average was Rs. 834 million. 

Foreign investors sold a net Rs. 95.3 million worth of shares on Wednesday, extending the year to date net foreign outflow to Rs. 1.6 billion worth of equities, according to index data.