Rupee ends 1% weaker on importer dollar demand

Wednesday, 6 February 2019 00:00 - - {{hitsCtrl.values.hits}}

Reuters: The rupee ended 1% weaker on Tuesday, due to dollar demand as importers purchased the greenback after the local currency gained nearly 3% last week.

The rupee closed at 178.20/50 per dollar, compared with Friday’s close of 176.60/177.00, market sources said. Markets were closed on the island nation’s Independence Day on Monday. Rupee posted a weekly gain of 2.8% last week as exporters converted dollars and foreign investors purchased Government securities after an IMF statement and Government’s $ 1 billion debt repayment boosted confidence.

The International Monetary Fund (IMF) on 16 January said it would resume discussions in February for further disbursal of part of a $ 1.5 billion loan. The currency has appreciated 2.5% so far this year. Investor confidence in Sri Lanka is stabilising after the country repaid a $ 1 billion sovereign bond in mid-January, Central Bank of Sri Lanka Governor Indrajit Coomaraswamy said last week.

Worries over heavy debt repayment after a 51-day political crisis that resulted in a series of credit rating downgrades dented investor sentiment as the county is struggling to repay its foreign loans, with a record $ 5.9 billion due this year, including $2.6 billion in the first three months.

Fitch Solutions Macro Research, a subsidiary under Fitch Group on Thursday downgraded its average forecast for the rupee to 186 per US dollar for this year and 192 in the next year, from 177 and 183 respectively.

The rupee dropped 16% in 2018, and was one of the worst-performing currencies in Asia due to heavy foreign outflows. The political crisis had dented investor sentiment and delayed Sri Lanka’s borrowing plans.

Sri Lanka was plunged into political turmoil when President Maithripala Sirisena abruptly removed Prime Minister Ranil Wickremesinghe and then dissolved Parliament. Wickremesinghe was later reinstalled as Premier. A Court ruled the dissolution was unconstitutional.

The Colombo Stock Index ended 0.01% weaker at 5,981.65 on Tuesday. It declined 1% in January. Turnover was Rs. 401.5 million ($2.26 million), less than half of last year’s daily average of Rs. 834 million. Foreign investors net sold Rs. 260.8 million worth shares on Tuesday.

They have been net sellers of Rs. 2.7 billion worth of stocks so far this year, and Rs. 16.1 billion since the political crisis began on 26 October 2018. The bond market saw inflows of Rs. 924.7 million in the week ended 30 January, the latest Central Bank data showed.