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REUTERS: The rupee closed firmer on Friday as banks sold dollars due to month-end inward remittances, but the currency is still under pressure as investors continue to dump rupee-denominated assets on a credit rating downgrade and a delay in an IMF loan discussion in the wake of a political crisis.
Foreigners sold a net Rs. 415.1 million ($ 2.33 million) worth of stocks on Friday, and they have been net sellers of Rs. 8.7 billion since the political crisis started on 26 October. The bond market saw outflows of about Rs. 34.2 billion between 25 October and 28 November, Central Bank data showed.
This year, there have been Rs. 18.1 billion of outflows from stocks and Rs. 123.2 billion from government securities, the latest data from the bourse and Central Bank data showed.
The rupee ended at 178.80/179.20 per dollar on Friday, compared with 179.70/180.00 in the previous session. It has weakened around 3.2% since the political crisis began. The currency fell 1.8% in November and 16.4% so far this year.
The rupee hit a record low of 180.85 per dollar on Wednesday, surpassing its previous low of 180.50 hit on Tuesday.
Moody’s downgraded Sri Lanka last week for the first time since it started rating the country in 2010, blaming the political turmoil for aggravating its already problematic finances.
The downgrade coincided with a decision by the International Monetary Fund to delay discussions on its loan tranche to Sri Lanka.
The political standoff took another turn on Friday as the Parliament voted to halt payment of Ministers’ salaries and travel expenses, but it remained unclear how the move would impact the disputed Government of Prime Minister Mahinda Rajapaksa whose Ministers boycotted the vote.
The new Government has not been recognised by any foreign countries because they have not proven their Parliament majority.
The political paralysis remains the main concern of investors. While Rajapaksa and President Maithripala Sirisena have failed to win support in Parliament for their new Government, the deposed Prime Minister Ranil Wickremesinghe’s coalition, which claims it does have majority support in Parliament, has not been allowed to try to form a Government.
The political impasse could be set to drag on longer after President Sirisena said on Sunday he would not reinstate Wickremesinghe as Prime Minister even if he was able to prove his majority in Parliament.
The Central Bank on 14 November unexpectedly raised its main interest rates to defend the rupee, which has faltered as foreign capital outflows pick up due to the domestic crisis as well as rising US interest rates.
Five-year government bond yields have risen 60 basis points since the crisis unfolded on 26 October.
The Colombo stock index rose 0.44% to 6,019.33 on Friday. It rose 1.5% this week, recording its first weekly gain in four. It gained 1.1% in November and has declined 5.5% so far this year.
