Rupee closes weaker at 186.50 to US dollar

COLOMBO: Sri Lanka rupee closed weaker at 186.50/00 to the US dollar on Friday in the spot market, dealers said in a report published in Economy Next.

Yields remained unchanged in dull market trade after the bond auction.

The rupee closed at 185.80/186.00 to the US dollar on Thursday against the US dollar.

Standard and Poor’s, said it was downgrading Sri Lanka to ‘CCC+’ saying a high budget deficit and excess liquidity is likely to put pressure on the exchange rate and make it more difficult to repay debt.

“The latest expansionary budget measures are likely to further weaken the government’s fiscal position,” the rating agency said.

“High fiscal deficits and excessive domestic liquidity will put downward pressure on the exchange rate and worsen the risks associated with the government’s already-high debt burden.”

It said while the government’s landslide parliamentary election victory indicated strong policy direction.

“While the current administration’s clear victory in August’s parliamentary election is likely to ease such uncertainty over policy direction, “further consolidation of power in the executive may increase institutional risks.”

“This could affect the stability of the legislature or the judiciary system, and in turn, hit policy predictability and business confidence. Social stability could also be undermined if divisions along religious or ethnic lines persist.”

In the secondary securities market, bond yields remained unchanged in dull market trade ahead of the bond auction, dealers said.

“Concluding the week, the secondary bond market witnessed low activities with thin volumes, despite the bond auction held today,” FirstCapital Research said.