Rupees hits historic low ahead of talks with IMF

In this file photo, Money dealers count Pakistani rupees, right, and US dollars at a currency exchange in Islamabad on March 12, 2014. (AFP)

• Pakistan’s rupee has been devalued by 32 percent since December 2017
• The devaluation may be prior action on the condition of IMF to further devalue — analysts

KARACHI: “When we woke up in the morning we came to know that the Pak rupee has been depreciated almost by PKR 10 against the dollar in the inter-bank market, it was a big shock,” says Zafar Paracha, General Secretary of Exchange Companies Association of Pakistan.
This weekend, the Pak Rupee plunged to a historical low of PKR 144 before closing at 138.64, losing 3.4 percent, against greenback prior to resumption of talks with International Monetary Fund IMF.
“It was like big tremor for the market because yesterday the finance minister, Asad Umar, in his speech (on completion of PTI government’s 100 days in office) had said that things are normal and there is no emergency,” Paracha told Arab News.
Pakistan’s interbank market was closed at PKR 133.98 against the dollar on Thursday which on Friday witnessed “unexpected movement” and hit low of PKR 144 against the dollar. “Though devaluation was expected but we were not expecting such big depreciation in a single day,” Fahad Irfan, Head of Research at Alfalah Securities, told Arab News.
This is the sixth round of Pak rupee devaluation since December 2017. The government had devalued Pak Rupee from PKR 105 on December 8, 2017, to PKR 135 on October 09, 2018, making the currency 27 percent weaker. Latest devaluation to PKR 138.64 is 32 percent cumulative since the December 2017.
Pakistan is negotiating with the IMF for the bailout program Islamabad needs to steer the economy out of balance of payment crisis. Among conditions of energy prices hike, interest rate hike, the IMF has asked the country to further devalue its currency.
Many expect that the latest devaluation is in line with the directions of IMF. “Most likely it could be IMF prior action,” Muhammad Sohail, CEO of Topline Securities, told Arab News.
“IMF has asked for rupee devaluation upto PKR 145 to PKR 150 against dollar and it seems that the government has taken this step despite the fact that apparently government say they have not availed the program yet,” Malik Bostan, President of Forex Association of Pakistan, commented.
“People are in state of shock because such movement is dangerous for market,” Bostan said adding “since morning only 1 to 2 percent trading in the currency has taken place in the open market” .
Financial experts believe that the devaluation of Pak Rupee will not end here as the country is expected to experience another wave of devaluation against dollar when the government will resume talks with the IMF. ” We can expected further rupee depreciation in January 2019 when the government is expected to resume talks with the fund for bailout program,” Fahad Irfan expected.
Experts believe that the devaluation was much needed as Pakistan’s external current account deficit CAD remained higher than expectations. For the period Jul-Oct 2018, CAD was reported at $4.8 billion, 1.6 percent of GDP.
As a result, Pakistan foreign exchange reserves also declined from $9.8 billion in Jul 2018 to $8 billion as of November 23, 2018, which is less than 2 months of import cover. This is despite the $1 billion inflow from Saudi Arabia which the country received last week, according to Topline Securities research.