Sri Lankan rupee. (Photo by Schöning/ullstein bild via Getty Images)

Sri Lanka’s rupee fell on Wednesday (28) to its seven-month closing low as foreign fund outflows after the central bank cut key monetary policy rates weighed on the currency. Shares closed steady.

Foreign investors sold net 12.9 billion rupees 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 40.9 billion rupees, 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 on Friday to boost sluggish growth after tourism and investments plummeted following deadly Easter Day bomb attacks by Islamist militants.

The rupee ended 0.3 per cent weaker at 180.20/50 per dollar, compared with Tuesday’s close of 179.75/85. The currency, however, is up 1.3 per cent this year.

The rupee has eased 2.2 per cent 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 $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.

T-bill rates fell between 9 basis points and 21 basis points at the weekly bill auction on Wednesday.

Meanwhile, the main benchmark stock index ended 0.03 per cent firmer at 5,910.92. It posted a gain of 0.07 per cent 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 2.3 per cent.

Equity market turnover was 657.1 million rupees ($3.65 million) on Wednesday, slightly above this year’s daily average of about 647.9 million rupees so far. Last year’s daily average was 834 million.

Foreign investors sold a net 21.6 million rupees worth of shares on Wednesday, extending the year to date net foreign outflow to 1.2 billion rupees worth of equities, according to index data.