COLOMBO (Reuters) - The Sri Lankan rupee hit a record low on Wednesday as panicked importers bought U.S. dollars following the defeat of the two ruling coalition parties in a local election, but late selling in the greenback by exporters capped the fall.
The ruling coalition government of President Maithripala Sirisena’s centre-left Sri Lanka Freedom Party and Prime Minister Ranil Wickremesinghe’s centre-right United National Party suffered defeats in a local election over the weekend, sparking political uncertainty.
The results have raised concerns over the future of the unity government amid pressure from the opposition parties to dissolve the parliament.
The rupee, which traded at a record low of 155.90 during the day, ended at 155.40/50 per dollar, compared with Monday’s close of 154.95/155.05 per dollar. It surpassed previous closing low of 155 hit on Monday.
The markets were closed for a public holiday on Tuesday.
“Panic buying by importers and exporters’ hesitance to sell dollars in early trade resulted in the fall. But during the latter part of the day we saw some exporter selling,” said a currency dealer.
“Rupee will be under pressure to depreciate until we see a solution to the political uncertainty.”
The local currency has weakened 1.3 percent so far this year.
The currency is expected to be pressured by continued demand from importers for dollars, dealers said.
They expect a gradual depreciation in the rupee and higher volatility this year on account of debt repayments by the government.
The domestic currency lost 2.5 percent last year and 3.9 percent in 2016.
President Maithripala Sirisena’s administration must repay an estimated 1.97 trillion rupees ($12.85 billion) in 2018 - a record high - including $2.9 billion of foreign loans and a total of $5.36 billion in interest.
Foreign investors sold a net 6.03 billion rupees worth of government securities in the week ended Feb 7.
With the outflow, foreign investors have turned net sellers of government securities worth 171.4 million rupees so far this year up to Feb. 7, central bank data showed.
Reporting by Ranga Sirilal and Shihar Aneez; Editing by Vyas Mohan