Rupee falls, rating risk weighs

Reuters: Sri Lanka’s rupee ended weaker on Wednesday on importer dollar demand, as traders shrugged off Central Bank intervention signals and rating agencies warned the sovereign rating may be at risk due to a potential balance-of-payments problem.

The rupee closed at 121.80/122.00 to the dollar, against Tuesday’s close of 121.40/60, on importer dollar demand in light trade, dealers said.

It has fallen 6.6 per cent since 9 February after the Central Bank decided to drop price-specific intervention to maintain a targeted exchange rate, which cost it more than $ 2.7 billion in foreign exchange reserves since August.

Standard & Poor’s Ratings Services on Wednesday revised Sri Lanka’s long-term foreign currency sovereign rating outlook to stable from positive due to external imbalances while Fitch warned of a rating downgrade for the same reason.

The rupee hit a record low of 123.40 on Tuesday, but the Central Bank sold $ 40 million in dollars through a State bank to bring the currency back up, in a break with its new forex policy.

A Reuters monthly forex poll on Wednesday forecast the rupee to fall as far as 128.50 by the end of August.

Government data on Wednesday showed that inflation in February surprisingly slowed to a 28-month low, despite an increase in fuel prices and costlier imports caused by the rupee’s fall.

Sri Lanka’s main share index gained 0.49 per cent or 26.42 points to hit 5,458.09 as retail investors bought discounted shares and a block deal in Sathosa Motors PLC boosted turnover.

Foreign investors were net sellers for the first time in 14 sessions on Wednesday, with a net outflow of Rs. 805.7 million.

So far this year, the net foreign inflow is Rs. 2.35 billion, after a net outflow of Rs. 19.1 billion last year.