KARACHI: Sudden devaluation of local currency against the US dollar was witnessed in inter-bank trading on Friday morning as the greenback hit an all-time high of Rs144.
The sudden rise of Rs10 in the value of the US dollar is based on the government’s commitments to the International Monitory Fund (IMF).
“We highlight that we put off any conclusions of settlement in the early hours of FOREX trading so as to identify by day end whether or not the parity has been adjusted by the State Bank of Pakistan (SBP),” an analyst at Arif Habib Limited said.
The US dollar, which was being traded at Rs134 yesterday, opened higher at Rs142 on Friday while the local currency further devalued by Rs2 to Rs144.
Dealers said the sudden devaluation of Pak rupee created a panic in the market. The traders are expecting the open market to open at around Rs143 to Rs144.
The devaluation was expected due to the current dialogues between the government and the IMF and it seems a continuation of the IMF’s condition for a bailout package.
Dealers demanded of the government to properly announce the devaluation to end the panic among currency dealers.
Another analyst Ahsan Mehanti said that the move was unexpected for the interbank market as the country has not yet entered the IMF programme. “Owing to the devaluation of the local currency in the recent past, the government was being expected to discourage the rupee devaluation,” he added.
“It is not good news for Pakistan,” he said, adding that it will also increase the import bill of the country.
According to Mehanti, the IMF was asking the government to bring rupee value at Rs145 per dollar and the interest rate at 10.5 per cent as a precondition for a bailout package. “It seems that the government is complying with the IMF’s demands,” he concluded.
Mounting pressure on foreign exchange reserves ($14.6 billion at present, SBP reserves at $ 8.1 billion and import cover at a meagre 1.7 months), negative net international reserves at $10 billion (NIR – adjusting SBP reserves with forward foreign currency swaps and scheduled debt servicing for 1 year), alongside the infamous Current Account Deficit at $4.8 billion in 4MFY19) has persistently stressed the PKR-USD parity.
Additionally, analysts also cite approaching International Monetary Fund (IMF) for a potential bail out package as a possible reason for depreciation of the Pak Rupee.
To recall, last major movement in a single day was witnessed in October 2018 whereby the Pak Rupee slipped against USD by 7.54 percent to settle at Rs133.64/USD, due to concerns over the deteriorating external account.