KARACHI: The country’s stock market is bearing the brunt of political uncertainty. The KSE-100 Index – a benchmark for market performance – has undergone a tumultuous ride this year with the ongoing Panama case making investors jittery.
However, Finance Minister Ishaq Dar believes that slide of the rupee, which lost 3.2% in value against the US dollar on Wednesday, is also due to the same reason. In a statement, Dar said that certain elements were taking advantage of the uncertain times in Pakistan’s politics and exploiting it as an opportunity to make money in the foreign exchange market.
Nevertheless, on Wednesday, the Pakistani rupee suffered its biggest one-day loss since 2008 and closed at its lowest value in three and a half years.
“This is an earthquake for the currency market and badly shakes investor confidence,” Forex Association of Pakistan President Malik Bostan told The Express Tribune.
Currency dealers say there is panic because of uncertainty.
“What is creating more confusion is that Finance Minister Ishaq Dar repeatedly said that the government would maintain the exchange rate. And now we see this sudden rise in the value of dollar,” he added.
Despite the situation, Bostan said that there was market talk that the government wanted to devalue the rupee, but nobody knew this could happen in just two hours. Just after the sudden fall in the rupee value, eyes turned towards the State Bank of Pakistan (SBP).
Dealers were wondering whether the sharp decline in the rupee value was the result of speculation or did it have the government’s blessing.
An analyst at Paracha International Exchange Pvt Limited commented that the sudden fall in the rupee value in just two hours caused panic in the market.
Clearing the air
Unexpectedly, the SBP issued a press statement supporting the fall in the value of the rupee. “The current exchange rate is broadly aligned with the economic fundamentals,” according to the SBP statement issued on Wednesday.
The move was surprising because the central bank has been supporting the rupee against the dollar by intervening in the open market during the last few years of this government.
The finance minister has been a big supporter of a strong rupee and since taking office in 2013, the PML-N has been trying to keep the rupee stable. However, his stance has been bitterly opposed by exporters who think artificial support to the rupee is creating problems for Pakistan’s exports at a time when regional competitors have devalued their currencies to support their exports.
Analysts say the government wanted to continue its stable rupee policy but it has recently come under severe pressure to devalue the rupee because of sharp rise in imports and decline in exports.
Published in The Express Tribune, July 6th, 2017.