Rupee hits fresh record low as political uncertainty weighs

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 rupee, which traded at a record low of 155.90 during the day, ended at 155.40/50 per dollar, compared with Monday’s close of 154.95/155.05 per dollar. It surpassed previous closing low of 155 hit on Monday.

The markets were closed for a public holiday on Tuesday.

“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 percent 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 percent last year and 3.9 percent in 2016. President Maithripala Sirisena’s administration must repay an estimated Rs.1.97 trillion in 2018 – a record high – including US $ 2.9 billion of foreign loans and a total of US $ 5.36 billion in interest.

Foreign investors sold a net Rs.6.03 billion worth of government securities in the week ended February 7.

With the outflow, foreign investors have turned net sellers of government securities worth Rs.171.4 million so far this year up to February 7, the Central Bank data showed.

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Stocks fall

REUTERS: Sri Lankan shares fell for a second straight session yesterday as political uncertainty after a defeat of the two ruling coalition parties in a local poll hurt investor sentiment.

The Colombo stock index ended 0.16 percent lower at 6,532.26, further slipping from its highest close since November 8 hit on Friday.The index gained 0.8 percent last week, its third straight weekly rise.

Shares in Bukit Dhara PLC fell 7.6 percent while Hemas Holdings PLC fell 0.3 percent and Hatton National Bank PLC ended 1.6 percent weaker. Biggest listed lender, Commercial Bank of Ceylon PLC, lost 1.8 percent.

“The market is negative with the continued political uncertainty,” said First Capital Holdings Research Head Dimantha Mathew.

“Delay in settlement is creating more uncertainty,” he said, referring to a decision that could end the political instability.  Investors are waiting for some stability and to see the direction in which both the coalition partners are headed.

The turnover stood at Rs.654.7 million, well below last year’s daily average of Rs.915.3 million.
Foreign investors, however, bought a net Rs.97.2 million worth of shares yesterday, extending the year-to-date net foreign inflow to Rs.5.4 billion worth of equities.

Analysts also said the investors were waiting to see the Central Bank’s key policy rate announcement today, which is widely expected to remain unchanged.