KARACHI: The Pakistani currency weakened over 5% to hit an intra-day low of Rs128 against the US dollar in the inter-bank market on Monday, according to sources familiar with the matter.
On Friday, the currency closed at Rs121.55 in the inter-bank market.
Currency dealers in the open market have voluntarily halted transacting in dollars, awaiting clarity on rates and the extent to which the rupee would fall. Calls made to the central bank spokesman on the development were left unanswered.
This would be the fourth round of devaluation since December 2017 when the currency was hovering around Rs105 to the US dollar. Cumulatively, the rupee has lost close to 22% against the greenback as economic managers move desperately to curtail a widening current account deficit and stop the slide of depleting foreign exchange reserves.
The latest round of devaluation also comes at a time when the caretaker government kick-starts the process of seeking a bailout from the International Monetary Fund’ (IMF) to enable the incoming government to move along quicker if it chooses to exercise the option.
The bailout would be meant to fix a balance of payments crisis as reserves drop to less than two months of import cover.
On Saturday, the State Bank of Pakistan (SBP) also increased the interest rate by 100 basis points to 7.5%, choosing the monetary policy tool at its disposal to curb aggregate demand and control imports.
“Prime minister, finance minister, and the SBP (State Bank of Pakistan) governor are the only three people who (mutually) decide what would be the Real Effective Exchange Rate (rupee-dollar parity),” SBP Governor Tariq Bajwa said while announcing the increase in benchmark interest rate on Saturday.
“Real Effective Exchange Rate and monetary policy (benchmark interest rate) are the two effective tools available with the central bank to deal with the situation. We are using both of them,” he said.
Stocks under pressure
The rupee’s weakness also took toll on the stock market, which was down over 2% or 820 points around 1:45pm in intra-day trading.
A higher key interest rate will make borrowing expensive, taking toll on the private sector, while a weaker rupee would increase the cost of doing business, especially for companies that are import-dependent.
“The higher interest rate and weaker rupee increases the cost for companies,” said Ahsan Arshad, deputy head of research at Taurus Securities. “This will affect aggregate demand and is likely to slow down growth. Naturally, it will affect earnings of listed companies, and this is why you see a bearish trend at the stock market.”
The over 800-point plunge brought the index below the 40,000 mark with nearly all sectors landing deep in the red as a weaker rupee took toll on market sentiment.
It has recently notified AML and CFT Regulations
Finance ministry, however, says option to be exercised by next government
Seek permission to pledge bonds with banks as collateral to take loans