Sri Lankan rupee plunges to all-time low as political crisis worsens

The Sri Lankan rupee fell to an all-time low of 179.00 per dollar on Wednesday, a day after Moody’s downgraded the country’s credit rating, as a political crisis worsens a rout in the currency. Moody’s downgraded Sri Lanka on Tuesday for the first time since it started rating the country in 2010, blaming the political crisis for aggravating 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 uncertainty remained the main concern of investors a day after President Maithripala Sirisena asked an all-party meeting to hold a third vote on a no-confidence motion against Prime Minister Mahinda Rajapaksa after rejecting the first two motions passed by a majority in the parliament, deepening the country’s political crisis.

The central bank last week unexpectedly raised its key policy rates, in a move aimed at defending a faltering rupee as foreign capital outflows pick up amid an escalating political crisis and rising U.S. interest rates.

The currency ended at 178.70/179.20 per dollar on Wednesday, compared with 177.30/50 at previous close. It has weakened more than 3.3 percent since the political crisis began on Oct. 26 and more than 16.4 percent so far this year.

Foreigners bought a net 10.2 million rupees worth of stocks on Wednesday. But they have offloaded equities worth 7.7 billion rupees since the political crisis started on Oct. 26. The bond market saw outflows of about 22.9 billion rupees between Oct. 25 and Nov. 7, central bank data showed. This year, there have been 17.3 billion rupees of outflows from stocks and 112.8 billion rupees from government securities, bourse and central bank data showed.

The 5-year bond yields rose about 25 basis points on Wednesday, market sources said. The Colombo stock index ended up 0.04 percent at 5,950.19 on Wednesday. It declined 0.39 percent last week and has fallen 6.5 percent so far this year.

Stock market turnover was 594.1 million Sri Lankan rupees ($3.33 million) on Wednesday, less than this year’s daily average of 836.9 million rupees. (Reuters)