Sri Lankan rupee falls on capital outflow fears; stocks weaker

Nov 16, 2016 (Reuters) – The Sri Lankan rupee was marginally weaker on Wednesday on fears that higher interest rates in the U.S. under incoming President Donald Trump would spark capital outflows from the domestic market.

Expectations that Trump’s administration will cut taxes, increase spending and accelerate inflation have lifted the dollar and driven bond yields higher.

Rupee forwards were active, with spot-next forwards trading at 148.60/70 per dollar at 0506 GMT, compared with Tuesday’s close of 148.50/55.

One-week forwards were trading at 148.70/80 per dollar, compared with Tuesday’s close of 148.60/75.

Dealers said foreign investors could pull out from emerging markets including Sri Lanka if interest rates go up in the U.S.

“The rupee is under pressure with foreign investors exiting government securities,” said a currency dealer requesting anonymity.

“A foreign bank is also buying dollars.”

Foreign investors net sold 34.2 billion Sri Lankan rupees ($231.08 million) worth of government securities in the four weeks ended Nov. 9, data from the central bank showed.

Dealers said a high-tax regime would also affect the rupee.

The national budget has proposed to revise corporate and withholding taxes to boost revenue and cut the 2017 fiscal deficit.

Exporters were reluctant to sell dollars due to global and local uncertainties following the budget, dealers added.

Sri Lankan shares were marginally weaker, with the benchmark Colombo stock index down 0.07 percent at 6,401.71 as of 0511 GMT. Turnover stood at 71.1 million rupees ($481,055.48).