Rupee hits fresh record low as political uncertainty weighs

Thursday, 15 February 2018 00:30 - - {{hitsCtrl.values.hits}}

Reuters: The Sri Lankan rupee hit a record low yesterday as panicked importers bought US dollars following the defeat of the two ruling coalition parties in a local election, but late selling in the greenback by exporters capped the fall.

The ruling coalition Government of President Maithripala Sirisena’s centre-left Sri Lanka Freedom Party and Prime Minister Ranil Wickremesinghe’s centre-right United National Party suffered defeats in a local election over the weekend, sparking political uncertainty.

The results have raised concerns over the future of the unity Government amid pressure from the opposition parties to dissolve Parliament.

The rupee, which traded at a record low of 155.90 during the day, ended at 155.40/50 per dollar, compared with 12 February’s close of 154.95/155.05per dollar. It surpassed previous closing low of 155 hit on Monday (12 February). The markets were closed for a public holiday on 13 February.

“Panic buying by importers and exporters’ hesitance to sell dollars in early trade resulted in the fall. But during the latter part of the day we saw some exporter selling,” said a currency dealer. “Rupee will be under pressure to depreciate until we see a solution to the political uncertainty.”

The local currency has weakened 1.3% so far this year.

The currency is expected to be pressured by continued demand from importers for dollars, dealers said.

They expect a gradual depreciation in the rupee and higher volatility this year on account of debt repayments by the government.

The domestic currency lost 2.5% last year and 3.9% in 2016.

President Maithripala Sirisena’s administration must repay an estimated Rs. 1.97 trillion ($ 12.85 billion) in 2018 - a record high - including $ 2.9 billion of foreign loans and a total of $ 5.36 billion in interest.

Foreign investors sold a net Rs. 6.03 billion worth of government securities in the week ended 7 February. With the outflow, foreign investors have turned net sellers of government securities worth Rs. 171.4 million so far this year up to 7 February, Central Bank data showed.