(Colombo) REUTERS: Sri Lanka’s rupee closed weaker yesterday, hovering near a seven-month closing low hit last week, as foreign fund outflows after the Central Bank’s rate cut weighed on the currency.
Foreign investors sold net Rs.12.3 billion worth of government securities in the week ended August 28, the second worst weekly outflow in eight months.
They offloaded government securities worth of Rs.25.2 billion in the two weeks ended on August 28, data showed, extending the year-to-date net foreign outflow to Rs.53.2 billion, the Central Bank data showed.
A surprise rate cut on August 23 has accelerated the outflow, currency dealers say. The Central Bank lowered rates for the second time in four months to boost sluggish growth after tourism and investments plummeted following deadly Easter Day bomb attacks by Islamist militants.
The rupee ended 0.4 percent weaker at 179.75/85 per dollar, compared with Friday’s close of 179.00/20. The currency is up 1.6 percent this year.
The rupee eased 1.5 percent in August as foreign investors sold government bonds in line with exit from other emerging markets.
Central Bank Governor Dr. Indrajit Coomaraswamy after the policy rate cut on August 23 said the bank was ready to cope with the outflow of total US $ 700 million foreign funds invested in Sri Lankan government securities. Exit of some funds had resulted in some pressure on the local currency.
The Central Bank in its monetary policy rate statement said the depreciation pressure was expected to be short-lived.
Meanwhile, the main benchmark stock index ended 0.2 percent weaker at 5,878.29. It fell 0.15 percent last week and 0.8 percent in August.
Sri Lankan investors have been mainly in a wait-and-see mode since the main opposition party named a hardline former defence chief as its presidential candidate.
The market has been awaiting details of former defence chief Gotabaya Rajapaksa’s campaign as well as the identity of the ruling party’s presidential candidate, who has yet to be announced, dealers said.
So far this year, the stock index has dropped about 2.7 percent.
Equity market turnover was Rs.559.1 million yesterday, less than this year’s daily average of about Rs.650.3 million so far. Last year’s daily average was 834 million.
Foreign investors sold a net Rs.19.1 million worth of shares yesterday but they have sold a net Rs.1.3 billion worth of equities so far this year, according to index data.