Rupee crashes further to reach 111 a dollar

LAHORE – Dollar at inter-bank and open markets Tuesday reached all-time high level as Pakistani rupee dipped sharply against the dollar. The greenback touched the intra-day high of Rs111.25 in the interbank market, however it closed at Rs110.38. Dollar was sold at Rs111 in open market.

Dealers said that rupee has devalued by around 5 percent against dollar during last three days, while it tumbled by Rs2.38 only on Tuesday compared to the Monday’s closing, leading to hike in imported goods prices and high inflation.

The currency dealers and financial experts said the rupee has been tumbling in an apparent devaluation by the central bank itself, fearing the local currency is going to depreciate further to Rs115 against one dollar to reach its ‘actual level’.

Sources in banking sector said that the dollar-rupee exchange rate is now moving towards a flexible regime, as the continuous depreciation in the rupee is market-determinant.

In July last, the same move by the State Bank was not approved by the then finance minister Ishaq Dar, and the exchange rate went back to its pre-depreciation level in the inter-bank market. Now the rupee is trading independently as per demand and supply mechanism and the central bank has stopped interference, currency dealers said.

Noted economist Dr Ashfaq Hassan Khan supported depreciation of the rupee to its fair value to revive exports and narrow down the trade and current account deficits. He said the local currency is overvalued. It hurts Pakistan’s exports, which become more expensive, also resulting in huge imports that are relatively cheaper due to the strong currency.

Rice Exporters Association chairman Samee Ullah Ch said that during 2016, the central bank kept the rupee stable artificially compared to 1.2 percent and 0.4 percent depreciation of Indian and Sri Lankan rupee, respectively, against US dollar. Nigerian Naira was then depreciated by 36.4 percent, when Central Bank of Nigeria abolished the peg and introduced flexible exchange rate regime. At a time when pro-export measures have failed, the rupee needs to be depreciated to gain its actual value to help Pakistan’s trade and current account positions, he said.

REAP chairman said that it is worrying that Pakistan’s trade deficit is increasing. Given that exporters’ tax refunds are stuck with the government, the SBP had no choice but to make the rupee weaker to help the economy.

Samee Ullah Ch welcomed the State Bank of Pakistan stance of market-based devaluation, which was long-awaited. The exchange rate should be based on demand and supply of dollars in the interbank market, he added. He said that it would be more prudent to allow the currency to slide in an orderly fashion towards a fairer valuation without any further intervention.

Noted economist Dr. Salman Shah said if the currency is kept strong by artificial means, these benefits are transitory and unsustainable. The policy of controlling rupee artificially is difficult even for massive trade-surplus countries to pursue its currency indefinitely. He said overvalued exchange rate discouraged exports, encouraged imports and kept the rupee cost of foreign debt servicing high.

Importers are of the view that this is calculated devaluation on SBP’s part. They said the rupee devaluation is in line with the demand of IMF, which has always advocated a flexible regime.

Pakistan FMCG Importers Association (PFIA) President Anjum Nisar expressed grave concern over the declining value of Pak rupee against greenback, urging the government to stop this trend as it may trigger a new wave of price hike as well as increases the import bill for the country.

He said that increase in value of the US dollar would enhance the prices of petroleum products thus making electricity more expensive besides increasing the cost of different raw material for the local industry.

He said that if the government was trying to support the declining exports by this mean it would not work. He said that imports would go costlier while increase in raw materials for industry means to kick out products from competition at the international level.

LCCI President Malik Tahir Javaid said that rapid devaluation of Pak rupee will damage the economic cycle of the country besides scaring off international investors therefore State Bank of Pakistan should control this dilemma without wasting a single moment.

“Devaluation would lead to lower industrial productivity, surge debts, harm already struggling exports, inflation hike, reduce the purchasing power of the masses that would pose serious challenges for the economy.”

He said that an unchecked increase in the dollar rate will multiply the cost of doing business and badly affecting the industrial, manufacturing and agriculture sectors as Pakistan has to import fertilizers, food items, oil, machinery and industrial raw material. He said though the weaker rupee benefits the exporters by giving them more rupees per dollar, but this benefit is neutralized by the costly imported inputs of manufacturing sector including textiles thus eroding the financial advantage of a weaker rupee.

Forex Association of Pakistan President Malik Bostan was of the view that government has devalued the rupee three times, as the rupee was at Rs98 to the dollar when PML-N came to power, which is now over Rs110. He said the Tuesday’s fluctuation was very high, creating more panic in the market. The market is expected to stand below 110 in the short-term but could devalue further based on demand and supply.

Money dealers said that now SBP intends to let the market decide the true value of the rupee. The SBP is of the view that this market-driven adjustment in the exchange rate will contain the imbalance in the external account and sustain the higher growth trajectory.

The SBP stated that the exchange rate will continue to reflect demand and supply conditions, adding that it stands to intervene in case speculative or monetary pressures emerge.

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