A dramatic fall, and an equally dramatic rise

Published: July 7, 2017
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A money changer counts Pakistani Rupee notes in Karachi. PHOTO: REUTERS

A money changer counts Pakistani Rupee notes in Karachi. PHOTO: REUTERS

KARACHI: Deliberate or not, the rupee slide – as dramatic as it was – stood for just one day. By Thursday, it was trading at a more ‘acceptable’ Rs105.7 to the US dollar.

But it happened only after the country’s finance minister called an emergency meeting, discussed the situation and then met some more officials on Thursday to bring some recovery to the rupee.

The rupee strengthened 2.35%, or Rs2.54, and traded at Rs105.70 to the US dollar in the inter-bank market on Thursday. A day earlier, it had unexpectedly lost 3.19%, or Rs3.35, to Rs108.25 a dollar – the biggest one-day loss since 2008. Accordingly, the local currency moved in a similar fashion in the open market as well. A Karachi-based currency dealer said they ended the day trading the dollar between Rs106.20 and Rs106.50.

Worst one-day fall for rupee since 2008 as dealers panic

But what exactly happened here? It is unusual for the rupee to move the way it did on Wednesday. Ishaq Dar, the country’s economic czar, is known to be a proponent of the strong rupee. The political party he is a member of is a supporter of a strong currency as well.

But many economists, global lending agencies and experts say the currency is overvalued. It hurts Pakistan’s exports, which become more expensive, and also result in greater imports that are relatively cheaper due to the strong currency. Widening trade and current account deficits are immediate results of the strong rupee.

Despite the government’s move to immediately strengthen the rupee, an official suggested that the currency needed to be devalued.

Economist Dr Ashfaque Hasan Khan stood with the State Bank of Pakistan and supported weakening the rupee to revive exports and narrow down the trade and current account deficits.

Rupee sinks 3.2% against US dollar, Dar and SBP divided over explanation

“At a time when pro-export measures have failed, the rupee needs to be weaker to help Pakistan’s trade and current account positions,” Khan told The Express Tribune.

“It is worrying that Pakistan’s trade deficit is increasing. Given that exporters’ tax refunds are stuck with the government, the SBP had no choice but to make the rupee weaker to help the economy.”

Forex Association of Pakistan President Malik Bostan, however, said that rupee has been devalued multiple times during the current government’s tenure already.

“The [current] government has devalued the rupee three times,” said Bostan. “It was at Rs98 to the dollar when PML-N came to power. It is now over Rs105.”

Published in The Express Tribune, July 7th, 2017.

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Reader Comments (2)

  • Kashif
    Jul 7, 2017 - 9:39AM

    Just another way to make money fast.Recommend

  • AJ
    Jul 7, 2017 - 10:54AM

    This is ridiculous intervention by the current government. The rupee is extremely overvalued vis-a-vis the USD on a REER basis. It should be trading somewhere around PKR 130 to USD. The constant manipulation and intervention by the government is having a negative impact on the economy. Exports have suffered while imports keep rising. CA deficit has reached phenomenal levels in the last decade. If you look at regional currencies they have depreciated significantly in the last few years. The ruling PML-N party is not very smart as they are solely focused on populist measures with the election around the corner. Their policies are extremely poor and bad for the economy. Recommend

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