Sri Lanka Stock Exchange. (Photo: Prashanth Vishwanathan/Bloomberg via Getty Images)

Sri Lanka’s rupee closed slightly firmer on Friday (30), snapping three straight sessions of losses and recovering from a seven-month closing low hit in the previous session, but risks of foreign fund outflows weighed on the currency.

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.

A surprise rate cut on Aug. 23 is expected to accelerate the outflow, currency dealers say. The central bank lowered rates for the second time in four months to boost sluggish growth after tourism and investments plummeted following deadly Easter Day bomb attacks by Islamist militants.

The rupee ended 0.7 per cent firmer at 179.00/20 per dollar, compared with Thursday’s close of 180.25/60. The currency is up 2 per cent this year.

The rupee has eased 1.5 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. The 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.

Meanwhile, the main benchmark stock index ended 0.18 per cent weaker at 5,889.86. It fell 0.15 per cent for the week and 0.8 per cent for the month.

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 2.7 per cent.

Equity market turnover was 1.1 billion rupees ($6.12 million) on Friday, more than this year’s daily average of about 650.9 million rupees so far. Last year’s daily average was 834 million.

Foreign investors sold a net 106.1 million rupees worth of shares on Friday, but they have sold a net 1.3 billion rupees worth of equities so far this year, according to index data.