Stocks gain on hope of rate cut; rupee weaker

Reuters: Sri Lankan shares rose for the third straight session on Thursday on hope of a rate cut by the Central Bank later this week, while the rupee closed weaker on mild importer dollar demand, market sources said. 

The Central Bank is widely expected to cut its key interest rates at a meeting on Friday, a Reuters poll showed, to support the economy after tourism and investment plummeted in the wake of Easter Sunday bombings. 

Traders said the Easter day bombings and aftermath violence, and worries over slowing economic growth weighed on investor sentiment. Most investors have shied away from the market since the 21 April bombings that killed more than 250 people. Sri Lanka is unlikely to hit its full-year economic growth target of 3-4% following the Easter Sunday bombings, junior finance minister Eran Wickremeratne told Reuters last week. A Reuters poll has predicted the growth to slump to its lowest in nearly two decades this year. 

The benchmark stock index ended 0.09% firmer on Thursday at 5,324.54. It rose 0.67% last week, recording its first weekly gain in three. The bourse has fallen 12% so far this year. Turnover was Rs. 223.5 million ($1.27 million), less than half of this year’s daily average of around Rs. 554.5 million. Last year’s daily average was Rs. 834 million. 

Foreign investors bought a net Rs. 42.4 million worth of shares on Thursday, but they have been net sellers of Rs. 5.54 billion worth of equities so far this year. The rupee ended weaker at 176.40/50 per dollar, compared with Wednesday’s close of 176.25/35, market sources said. 

Analysts expect the rupee to weaken further as money flows out of stocks and government securities. The rupee fell 0.23% last week but is up 3.5% for the year. Exporters had converted dollars as investor confidence stabilised after a $1 billion sovereign bond was repaid in mid-January. 

 The rupee dropped 16% in 2018 and was one of the worst-performing currencies in Asia. Foreign investors bought a net Rs. 2.1 billion worth of government securities in the week ended 22 May, but the island nation saw a net foreign outflow of Rs. 19.1 billion so far this year, Central Bank data showed. 

Investor sentiment was damaged at the end of last year when President Maithripala Sirisena abruptly removed Prime Minister Ranil Wickremesinghe and then dissolved Parliament. A court later ruled the move unconstitutional, but the political turmoil led to credit rating downgrades and an outflow of foreign funds.