COLOMBO (Reuters) - The Sri Lankan rupee hit a record low for a sixth straight session on Wednesday as investors dumped rupee-denominated assets after a credit rating downgrade and a delay in an IMF loan discussion in the wake of a political crisis.
It ended firmer due to central bank greenback selling to prop up the currency.
The rupee hit a fresh low of 180.85 per dollar, surpassing its previous low of 180.50 hit on Tuesday. It ended at 180.50/90 per dollar on Wednesday, compared with 180.40/90 in the previous session. It has weakened around 3.6 percent since the political crisis began on Oct. 26 and 17 percent so far this year.
Moody’s downgraded Sri Lanka last week for the first time since it started rating the country in 2010, blaming the political turmoil for aggravating its 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 standoff took another turn on Friday when the lawmakers who back the disputed prime minister, Mahinda Rajapaksa - who has refused to resign despite losing two confidence votes in parliament - walked out of the chamber in the face of another defeat there.
On Monday, lawmakers who back Rajapaksa boycotted the parliament session. Rajapaksa and the new government have not been recognised by any foreign countries because they have not proven their parliament majority.
The political paralysis remains the main concern of investors. While Rajapaksa and President Maithripala Sirisena have failed to win support in parliament for their new government, the deposed prime minister Ranil Wickremesinghe’s coalition, which claims it does have majority support in parliament, has not been allowed to try to form a government.
The political impasse could be set to drag on longer after President Sirisena said on Sunday he would not reinstate Wickremesinghe as prime minister even if he was able to prove his majority in parliament.
The central bank on Nov. 14 unexpectedly raised its main interest rates to defend the rupee, which has faltered as foreign capital outflows pick up due to the domestic crisis as well as rising U.S. interest rates.
Foreigners sold a net 201.9 million rupees ($1.13 million) worth of stocks on Tuesday, and they have been net sellers of 7.9 billion rupees since the political crisis started on Oct. 26. The bond market saw outflows of about 29 billion rupees between Oct. 25 and Nov. 21, central bank data showed.
This year, there have been 17.3 billion rupees of outflows from stocks and 118.8 billion rupees from government securities, the latest data from the bourse and central bank data showed.
Five-year government bond yields have risen 70 basis points since the crisis unfolded on Oct. 26.
The Colombo stock index rose 0.16 percent to 5,981.16 on Wednesday. It declined 0.41 percent last week following a 0.39 percent fall previous week. It has fallen 6.1 percent so far this year.
Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu and Louise Heavens