Sri Lanka’s rupee rallied by the most in over three decades and stocks surged as China’s support for the nation’s debt plan and the central bank’s move to scrap the currency trading band boosted optimism over an International Monetary Fund bailout.
(Bloomberg) — Sri Lanka’s rupee rallied by the most in over three decades and stocks surged as China’s support for the nation’s debt plan and the central bank’s move to scrap the currency trading band boosted optimism over an International Monetary Fund bailout.
The rupee soared 5.7% to 321 per dollar on Tuesday, the biggest gain since 1989. The Colombo All-Share Index climbs 2.1%, set for its highest close since September. Local markets were shut Monday for a holiday.
China gave assurances that it will support Sri Lanka’s debt restructuring, a key requirement for the IMF’s $2.9 billion bailout, according to people familiar with the situation. The bailout will pave the way for more funding and set the bankrupt nation’s debt restructuring on a steadier path since last year’s default.
The nation’s dollar bonds due 2030 advanced three cents on the dollar to 39.4 cents.
“The IMF bailout is getting priced in, but there will still be some upside to the rupee when the deal is confirmed,” said Sanjeewa Fernando, senior vice president of research at Asia Securities Pvt Ltd in Colombo. The rupee will probably strengthen to 300 to 315 rupees per dollar in the near-term, he said.
Market Driven
Meanwhile, Sri Lanka’s central bank governor Nandalal Weerasinghe said Friday that the rupee will be fully market-driven from this week in addition to delivering a larger-than-expected 100 basis point rate hike. Allowing the currency to move in accordance with market supply and demand will lead to a fairer exchange rate, which the IMF would like to see. And higher funding costs make it more lucrative for investors to hold the rupee.
The central bank last week widened the currency trading band three times, sparking a rally in the rupee. The band, which limits the movement of the rupee within a certain range, was implemented in May last year to curb the currency’s slide after the nation defaulted on its sovereign debt.
(Updates with rupee, stock prices in 2nd paragraph and bond prices in 4th paragraph.)
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