BE2C2 Report (Islamabad) — Pak currency dropped to Rs135.80 for a US dollar in retail on Saturday due to speculation that authorities are on the brink of further devaluing the rupee.
“The recent IMF conditioning to (the government to) devalue rupee to around Rs145-150 against the dollar played on sellers’ mind…people are not coming to the selling counters,” Exchange Companies Association of Pakistan (ECAP) General Secretary Zafar Paracha.
“Rupee hit (a) low as supply shrank next to nil with the currency dealers at open (retail) market,” he said.
Paracha added that demand for the dollar remained stagnant against (almost) no supplies and this situation caused rupee to plunge on Saturday.
Presently, the Pakistani currency is Rs3.2 away from a historic low of Rs139 hit in October.
Speaking on a TV Talk Show with Nasim Zehra on Sunday, Information Minister Fawad Chaudhry said, the option of going to IMF is not as critical as before.
“The issue of default was one of the most important ones. We had to reach a certain level of the stable financial position. After the visits of PM Khan to UAE, KSA, and China, Pakistan has reached that level.”
He said that the government was criticized for not going to IMF earlier. But in that case, IMF would have imposed some hard conditions on Pakistan. For example, raising the price of the dollar and taking it up to Rs200, he added.
Bankers said that with the inflow of $1 billion from Saudi Arabia – additional $2bn are expected to come later – there is little chance for further devaluation of the rupee.
The State Bank of Pakistan has devalued the rupee by a massive 27%, or Rs28.5, in five rounds in the last 11 months. Still, the IMF experts believe it is not enough and let market forces decide the fate of the rupee and go for a total free-float of the exchange rate.
So far the government has reportedly rejected further deprecation of rupee despite widening current account deficit; cumulatively, the country requires about $12bn to plug the hole.
The finance ministry is reluctant to accept IMF ‘free float’ idea due to its adverse implications for the economy.
Pakistan Forex Association President Malik Bostan stated that the fresh drop in rupee is seen due to a host of issues that emerged in the last couple of days, including the end of Pakistan-IMF talks on an inconclusive note for a bailout.
“The package, which was being expected by mid-December, has now possibly delayed till (mid or late) January 2019,” he said. The possible delay mounted pressure on rupee with Pakistan’s foreign currency reserves falling to over four-and-a-half-year low at $7.28 billion as on November 16, 2018.
Besides, the Financial Action Task Force’s (FATF) recent reminder to Pakistan to improve its international payment system in compliance with international rules for combating terror financing and money laundering, the terrorist attack on Chinese consulate in Karachi and other parts of the country and crackdown on terrorist elements have altogether made the open currency markets uncertain, he added.