KARACHI: The Pakistan rupee weakened to a record low against the dollar yesterday, the third consecutive day it has hit an all-time low, adding pressure on the central bank to take emergency action to halt the currency’s dive.
The rupee weakened to a record low of around 75.05/15 to the dollar yesterday. Two traders said the rupee traded at record low levels of 75.00/10 and 75.15/25.
At 0855 GMT, the rupee was trading at 75.50/60 in the kerb market. The rupee’s previous record low of around 73.70/80 was set on Tuesday.
While the tumble in the rupee — down 22 percent against the US dollar this year — is fuelled by the possible impeachment of President Pervez Musharraf and Pakistan’s shaky economy, some analysts said Pakistan’s central bank needed to take emergency short-term action to restore investor confidence.
Given that the central bank is cash strapped, some analysts said it may need to hold an emergency policy meeting and raise rates by as much as 4 percentage points in one go to support the currency.
“They need to stabilize the situation and aggressively tighten policy,” said Sanjay Mathur, an economist at RBS. “They need to send a strong signal.”
Although a rise in the key discount rate, already at its highest level since June 2001 at 13 percent, will further hit exports and widen the trade deficit, some analysts said the central bank may have little choice.
It cannot afford to buy and defend the rupee because foreign exchange reserves are worth less than three months of imports.
The central bank last took emergency steps to rescue the rupee on July 9 by temporarily halting forward booking of foreign currency for all imports, removing the simplest way for importers to hedge against a weakening rupee.
The Karachi Stock Exchange benchmark 100-share index fell 0.6 percent yesterday, hovering near two-year lows.
The rupee weakened 1.97 percent against the US dollar yesterday, the sharpest one-day decline since a 2.2-percent fall on July 8 when a series of blasts and attacks in Islamabad and Karachi compounded investors’ fears about the investment climate.
“I’m shorting the rupee right now. I see more weakness ahead,” said one trader who declined to be identified.
Pakistan’s ailing economy is also struggling with widening trade and fiscal deficits, and soaring inflation.
The consumer price index rose 24.33 percent in July from a year ago, the government said on Tuesday, the highest in more than three decades. Analysts said the key step for the government was to secure foreign financial aid.