KARACHI: Pakistan’s rupee weakened sharply against the dollar on Tuesday in what appeared to be a currency devaluation by the central bank, traders said, the second such intervention in the last three months.
The rupee plunged to about 115.5 per dollar in early interbank trading from 110.5 at Monday’s close, traders said.
The State Bank of Pakistan devalued the local currency by about 5 percent in December amid balance of payments pressures due to a widening current account deficit and dwindling foreign reserves. The market was broadly expecting another devaluation this year.
“Apparently the central bank withdrew support,” Fawad Khan, head of research at BMA Capital, told Reuters.
Withdrawal of support would have the effect of devaluing the currency as the State Bank of Pakistan (SBP) is the most influential player in the thinly-traded local foreign exchange market and controls what is widely considered a managed float system.
The central bank did not immediately respond to Reuters’ request for comment.
According to local daily Dawn, the State Bank held rising demand for dollars responsible for the rise in the USD, adding that it is closely monitoring the situation, but forex dealers seemed reluctant to accept this line of reasoning.
General Secretary Exchange Companies Association Zafar Paracha told Dawn.com that the USD was being sold and purchased at Rs116 and Rs115 respectively.
He claimed that foreign loans, the government’s unannounced commitments to international bodies and corruption are responsible for the lower value of the rupee.
Paracha, speaking about corruption with respect to fluctuation in the dollar-rupee exchange rate, alleged that those with advance knowledge of the changing value were able to earn money off the adjusted rates.
Pakistan’s economy has been growing at above 5 percent, the fastest pace in a decade, but a surge in imports has widened its current account deficit and prompted analysts to suggest the country may need an International Monetary Fund (IMF) bailout in the coming 12 months.
“We believe this is much needed as Pakistan’s external account has deteriorated as of late,” the Topline Securities brokerage said in a flash note to clients on Tuesday morning after the rupee weakened.
Several analysts say Pak Rupee may hit between 120 and 125 by summer– the country’s general elections are due in July.