Sri Lankan rupee hits record low as foreign outflows continue

COLOMBO: The Sri Lankan rupee fell to a record low on Monday  due to continued outflows of foreign funds from bonds and stocks as political uncertainty dented investor sentiment.

The rupee hit an all-time low of 181.67 to the dollar in early trade, surpassing its previous record of 181.25 marked in the previous session. It has weakened about 4.7 percent since the political crisis began. The currency dropped 1.8 percent in November, and has lost 18.2 percent this year.

Sri Lankan President Maithripala Sirisena appointed a 30-member cabinet on Thursday, retaining control over the police while they investigate an alleged plot to kill him that triggered a row with the premier and led to a lengthy political crisis.

The political crisis was expected to ease after Sirisena reinstated Ranil Wickremesinghe, whom he had ousted in October. The country plunged into a 51-day crisis following the ouster. However, a delay in appointing cabinet ministers dented sentiment, dealers said.

Political paralysis remained the main concern for investors since Sirisena abruptly sacked Wickremesinghe and replaced him with Mahinda Rajapaksa, who failed to win a parliamentary majority and resigned on Dec. 15 as a government shutdown loomed.

Sri Lanka's parliament passed a 1.77 trillion rupee ($9.39 billion) vote on account on Friday to meet the expenditures of first four months to avert a government shutdown from Jan. 1.

Wickremesinghe was sworn in as Sri Lanka's prime minister on Dec. 16, making a remarkable comeback weeks after being ousted by Sirisena under controversial circumstances.

The Sri Lankan rupee strengthened early last week, while bond yields dropped as the political crisis appeared to ebb, but investors took a cautious stance to observe whether Sirisena and Wickremesinghe could work well together.

Foreigners were net sellers of 5.6 million rupees  ($30,888.03) worth of stocks on Monday. They have been net sellers of 13.7 billion rupees since the political crisis began on Oct. 26. The bond market saw outflows of about 56.7 billion rupees between Oct. 25 and Dec. 19, central bank data showed.

The rupee ended at 181.50/70 per dollar, compared with 181.30/50 in the previous session.

Credit rating agencies Fitch and S&P downgraded Sri Lanka's sovereign rating early December, 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 23.1 billion rupees of outflows from stocks and 148.9 billion rupees from government securities, the latest data from the bourse and central bank showed.

Moody's downgraded Sri Lanka on Nov. 20 for the first time since it started rating the country in 2010.

Five-year government bond yields have risen 22 basis points since the political crisis began, while yields on Sri Lanka's dollar bonds due in 2022, which have risen around one percentage point to 8.0 percent through Dec. 14, fell 0.42 percent to 7.6 percent on Monday.

The Colombo stock index ended 0.32 percent firmer at 6,025.12 on Monday. Turnover was 326.2 million rupees, well below this year's daily average of 841 million rupees.