Rupee ends lower on foreign sell-off on uncertainty

REUTERS: The rupee ended weaker on Friday amid pressure on the currency due to foreign outflows from bonds and stocks as uncertainty from a lingering political crisis weighed on sentiment. 

On Thursday, the Supreme Court ruled that President Maithripala Sirisena’s decision to dissolve Parliament ahead of its term was unconstitutional, in a setback for the embattled leader in his dispute with an ousted Prime Minister. 

If a Budget is not approved by Parliament this month, the Government might face a shutdown, Government officials have told Reuters. Foreigners were net buyers for the first time in 14 sessions on Friday, buying a net Rs. 56.6 million ($ 314,969) worth of stocks. But they have been net sellers of Rs. 10.6 billion since the political crisis began on 26 October. 

The bond market saw outflows of about Rs. 56 billion between 25 October and 14 December, Central Bank data showed. The rupee ended at 179.90/180.10 per dollar, compared with 179.55/75 in the previous session. Credit rating agencies Fitch and S&P downgraded Sri Lanka’s sovereign rating last week, citing refinancing risks and an uncertain policy outlook, after Sirisena’s sacking of his Prime Minister in October triggered the political crisis. 

This year, there have been Rs. 20 billion of outflows from stocks and Rs. 148.2 billion from government securities, the latest data from the bourse and Central Bank showed. 

The rupee hit a record low of 180.85 to the dollar on 28 November. It has weakened about 3.8% since the political crisis began. The currency fell 1.8% in November. It has lost 17.1% this year. Moody’s downgraded Sri Lanka on 20 November for the first time since it started rating the country in 2010, blaming the political turmoil for aggravating its already problematic finances. 

The political paralysis remains the main concern for investors since Sirisena abruptly sacked Ranil Wickremesinghe as the Prime Minister and replaced him with Mahinda Rajapaksa, who was later voted out twice in Parliament through confidence votes. 

Five-year government bond yields have risen 60 basis points since the political crisis began, while yields on Sri Lanka’s dollar bonds due in 2022 have risen around a percentage point to 8.21% since then. 

The Colombo stock index ended 0.04% up at 6,062.55 on Friday. Turnover was Rs. 296.8 million, well below this year’s daily average of Rs. 824.6 million.