Sri Lanka's stock market fell more than 4 percent at one stage on Monday after the government increased fuel prices by 37 percent following a change to foreign exchange policies that allow the rupee to depreciate further.
The central bank last Thursday had said it was shifting its foreign exchange policy to allow the market to determine the currency's rate. This will remove a point of friction with international lenders and relieve pressure on the bank's fast dwindling foreign exchange reserves.
The main share index plummeted 4.63 percent in early trade, but recovered to close 2.20 percent or 117.01 points lower at 5,199.98 points, its lowest since Aug. 2010.
"Panic selling brought the market down following the weekend fuel hike," said an analyst asking not to be named.
On Saturday, the government increased fuel prices by at least 37 percent due to high global oil prices and the rupee's depreciation.
Investors sold shares to settle margin calls, while institutional investors stayed away from the market due to concerns over potential interest rate hikes and rupee depreciation, analysts said.
The rupee fell 1.9 percent on Monday to hit a near three-year low.
The rupee closed at 117.50 to the U.S. dollar, its lowest since May. 15, 2009, from Thursday's close of 115.25.
The currency has weakened 3.13 percent in the last two sessions after the central bank changed its intervention policy. The bank has spent more than $2.7 billion to defend the currency since July.
The central bank last Thursday had said it was shifting its foreign exchange policy to allow the market to determine the currency's rate. This will remove a point of friction with international lenders and relieve pressure on the bank's fast dwindling foreign exchange reserves.
The main share index plummeted 4.63 percent in early trade, but recovered to close 2.20 percent or 117.01 points lower at 5,199.98 points, its lowest since Aug. 2010.
"Panic selling brought the market down following the weekend fuel hike," said an analyst asking not to be named.
On Saturday, the government increased fuel prices by at least 37 percent due to high global oil prices and the rupee's depreciation.
Investors sold shares to settle margin calls, while institutional investors stayed away from the market due to concerns over potential interest rate hikes and rupee depreciation, analysts said.
The rupee fell 1.9 percent on Monday to hit a near three-year low.
The rupee closed at 117.50 to the U.S. dollar, its lowest since May. 15, 2009, from Thursday's close of 115.25.
The currency has weakened 3.13 percent in the last two sessions after the central bank changed its intervention policy. The bank has spent more than $2.7 billion to defend the currency since July.
Kunuharupa thama ithin mathak wenne mun karana ewwa dakkama.
