Inter-bank: Rupee continues to depreciate, settles at Rs108.41 to the dollar

SBP says demand and supply is determining rupee-dollar parity

KARACHI: Pressure on the Pakistani rupee continued for a second successive day as the currency depreciated another Rs1.42 (1.32%) to end at Rs108.41 to the US dollar in the inter-bank market on Monday.

The move, which some say is a loud and clear message that it is a strategic initiative, also signals the admission on part of the government that the economy isn’t performing as well as initially projected to be.

With the fresh fall, the rupee has now lost a cumulative 2.75% (Rs2.91) in the inter-bank market in the last two working days. It hit a high of Rs110 to the dollar on Monday in intra-day trading.

"Miftah Ismail (Special Assistant to the Prime Minister for Economic Affairs) admitted in a…TV show that they are letting the rupee relax and would intervene when they feel (unnecessary) pressure on the currency or find speculation in the market," a senior banker cited.



"The message is very clear that the government has allowed the downward move in the rupee," he said. "I guess it would settle around Rs110 within one to two days…volatility is not good for the market."

He said it remained completely in the hands of the government to move the rupee up or down.  "They are doing it now under the commitment made with the IMF last week and on the suggestion of foreign investors who have recently invested $2.5 billion in the Eurobond and Sukuk (Islamic bond)," he said.

Another seasoned banker termed the ongoing depreciation as a healthy move for the economy. "It will make the imports expensive and may help manage the bill while giving a boost to exports.



"The move (depreciation) will also help increase remittances and discourage people to send money through Hundi/Hawala," he said.

"It all seems a well-thought out move from the government, but on the dictation of the IMF.”

He said the rupee would settle somewhere around Rs110-111 to the greenback.

Meanwhile, State Bank of Pakistan spokesman Abid Qamar said it was not the central bank which was controlling the rupee-dollar parity, but the inter-bank market. "It is driven by supply and demand … and the central bank would intervene if it finds speculation," he said.

A currency dealer, however, questioned the timing of the extra ordinary demand that is driving up the price of the dollar.

Forex Association of Pakistan President Malik Bostan said the rupee closed at Rs109 to the US dollar in the open market.

"The open market continued to follow the movement in the inter-bank,

“There is no panic as people are adopting a wait-and-see strategy.”