(Colombo) REUTERS: Sri Lanka’s rupee closed almost steady yesterday at a fresh seven-month low, but risks of foreign fund outflows weighed on the currency after the Central Bank cut key monetary policy rates.
Foreign investors sold net Rs.12.9 billion worth of government securities in the week ended Aug. 21, the worst weekly outflow in eight months, and the year-to-date net foreign outflow was Rs.40.9 billion, Central Bank data showed.
The surprise rate cut on Friday is expected to accelerate 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 steady at 180.25/60 per dollar, compared with Wednesday’s close of 180.20/50. The currency, however, is up 1.3 percent this year.
The rupee has eased 2.2 percent this month as foreign investors sold government bonds in line with exit from other emerging markets.
Central Bank Governor Indrajit Coomaraswamy on Friday 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 0.18 percent weaker at 5,900.48. It posted a gain of 0.07 percent last week.
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 2.5 percent.
Equity market turnover was Rs.639.7 million (US$3.56 million) yesterday, slightly less than this year’s daily average of about Rs.647.9 million so far. Last year’s daily average was Rs.834 million. Foreign investors bought a net Rs.23.3 million worth of shares yesterday, but they have sold a net Rs.1.2 billion worth of equities so far this year.