ISLAMABAD: In the largest single-day parity in last around two decades, the Pak rupee underwent an almost 5% intraday downswing against US dollar as it was traded at Rs 116.01 vis-à-vis Monday’s closing of Rs 111 in the inter-bank market.
As currency dealers suspected government’s commitments to foreign monetary bodies being the major cause behind the sudden rise of the US dollar, the State Bank of Pakistan (SBP) held rising demand for dollars responsible for the fluctuation, adding that it was ‘closely monitoring’ the situation.
The last major movement in the parity in a single day was witnessed in December last year whereby the SBP had let the Pak rupee slip against US dollar by 2.33% to settle at Rs 110.
The SBP in a statement Tuesday afternoon said that it was keeping a ‘close eye’ on the interbank market proceedings. Pakistani rupee is moving downward largely due to the pressure emanating from the country’s imports payments, the bank spokesman said, adding the local currency market was adjusting the rate accordingly.
However, foreign exchange traders said the central bank’s withdrawal of support for the rupee in daily market operations on Tuesday sent the currency lower.
The SBP devalued the local currency in a similar manner in December amid balance of payment 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 the support,” Fawad Khan, head of research at BMA Capital, said.
General Secretary Exchange Companies Association Zafar Paracha claimed that foreign loans, government’s unannounced commitments to international bodies and corruption were responsible for the lower value of the rupee.
Speaking about corruption with respect to fluctuation in the dollar-rupee exchange rate, he alleged that those with advance knowledge of the changing value were able to earn money off the adjusted rates.
A sharp drop in militant attacks and vast infrastructure investments by China have propelled Pakistan’s economic growth to above 5 percent, the fastest pace in a decade. But a surge in imports, in part driven by purchases of machinery for the China-Pakistan Economic Corridor (CPEC) projects, has widened Pakistan’s current account deficit and prompted analysts to suggest the country may need an International Monetary Fund (IMF) bailout in the coming 12 months.
The IMF, which last provided a bailout package to Pakistan in 2013, earlier this month said the Pakistan’s short term outlook was ‘broadly favorable’ while also warning that ‘continued erosion of macroeconomic resilience could put this outlook at risk’.
Analysts believe that the depreciation in the value of Pakistani rupee was the need of the hour in the backdrop of deterioration in the country’s external account.
During the fiscal year 2017, Pakistan had posted current account deficit of 12.2 billion US dollars (4 percent of the country’s GDP) as compared to 2.6 billion US dollars (0.9 percent of the country’s GDP) in the fiscal year 2016.
During the period from July 2017 till Jan 2018, the current account deficit has shot up to 9.1 billion US dollars (2.9 percent of the country’s GDP) when compared with 6.2 billion US dollars (2.0 percent of the country’s GDP) last year.
On the other hand, the Pakistan Stock Exchange (PSX) took the development positively with the key index notching up almost 2 percent value during intraday trade.
Spurred by an almost 5 percent fall in the rupee’s value against dollar, the KSE-100 Index – benchmark for market performance – climbed 776 points in intraday trading as investors rushed to buy stocks that benefit from a weaker currency.
Quite fittingly, the textile and oil sectors gained due to a direct advantage, while shares of banks got a boost due to expectations of an early interest rate hike that would come on the back of higher inflation readings.
By 12:15pm, the KSE-100 Index was hovering around the 44,160 level for an intraday increase of 620 points or 1.42% with index-heavy banks, oil and textile stocks leading the rally. Volume on the all-share index was up to 125 million shares already, less than halfway through the session. The increased activity was in sharp contrast to a dull session on Monday when volume for the entire session amounted to 116 million shares.