Dollar up against rupee again as Pakistan on brink of IMF deal

Special Dollar up against rupee again as Pakistan on brink of IMF deal
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Customer at currency dealers is counting Pakistani rupees in Islamabad on Monday, April 1, 2019. (AN Photo)
Special Dollar up against rupee again as Pakistan on brink of IMF deal
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Customer at currency dealers is counting Pakistani rupees in Islamabad on Monday, April 1, 2019. (AN Photo)
Updated 16 May 2019

Dollar up against rupee again as Pakistan on brink of IMF deal

Dollar up against rupee again as Pakistan on brink of IMF deal
  • State Bank depreciates national currency to new all-time low of Rs140.78 against US dollar
  • Experts say the move is “prior action” as Pakistan and International Monetary Fund close to finalising bailout package

KARACHI: The State Bank of Pakistan depreciated the national currency to a new all-time low of Rs140.78 against the US dollar in the inter-bank market on Friday, a move experts believe is "prior action" by Pakistan as it closes in on an International Monetary Fund (IMF) bailout deal.
The central bank hiked the policy rate by 50 basis points to 10.75 percent two days after Pakistan’s state bank head met with the visiting IMF mission chief on March 30.
The dollar picking up once more against the Pakistan rupee this week has generated alarms not only among the business community but also common Pakistanis. It has also led to a spike in the country’s external debt.
"Our understanding is that the key policy rate increase is a pre-IMF measure or prior action,” said Muhammad Sohail, CEO of Pakistani brokerage Topline Securities. “IMF has always been asking for flexible exchange rates where market forces determine rates on the basis of supply and demand.”
Since December 2017, the rupee has experienced devaluation of over 33 percent against the US dollar and in the last three weeks alone, it has cumulatively dropped Rs2.25 or 1.6 percent.
"We estimate that by the end of this year the rupee will further devalue to Rs.150 to the US dollar,” Sohail said.
The open currency market which follows the inter-bank market also shed one rupee and settled at Rs142.30 against the dollar on Friday, according to the Exchange Companies Association of Pakistan.
“An interesting situation has emerged in the market. Those holding dollars are not willing to sell while others want to buy dollars to benefit from further devaluation,” Malik Bostan, President Forex Association of Pakistan, told Arab News.
He warned that if a free-float of the rupee was imposed without state control, the rupee would spiral into free-fall.
“The imposition of such a condition is not possible in the presence of meager foreign exchange reserves,” he said, adding that growing demand for the Saudi Riyal with the impending Hajj and Umrah season was another reason for a high demand for the dollar in the open market.
Talks with the IMF began soon after the government of Prime Minister Imran Khan was appointed last August but a package has been held up by differences over the pace and scale of reforms that Pakistan would be required to undertake.
The IMF has pressed Pakistan to improve tax revenue collection, bolster foreign currency reserves and narrow a current account deficit expected to top 5 percent of gross domestic product this year.
Pakistani officials say they agree on the need for reforms but do not want to sign up to conditions that would derail the economy, with growth set to slow this year to around 4 percent from 5.2 percent last year.
This will be Pakistan’s 13th bailout since the late 1980s.