Currency weakens to Rs128 due to uncertainty over IMF bailout

Fund’s team in Islamabad, holds meetings with Pakistani authorities to review the country’s economic performance


Salman Siddiqui September 30, 2018
Banks are the second source of dollar supply to the dealers. They, however, remained closed on Saturday on account of weekly holiday. PHOTO: FILE

KARACHI: The rupee continued to remain on a downward trend in the open market on Saturday as it lost over one-rupee to Rs128 to the US dollar on speculation that the government would let the currency depreciate further under the influence of the International Monetary Fund (IMF).

“Dollar is priced at Rs128 (a new two-month low),” said a dealer at Galaxy Exchange Company in Karachi.

Currency dealers reported they closed the rupee-dollar trade in the range of Rs126.8 to Rs128 compared to Rs126.1 to Rs126.8 a day earlier.

In the officially run inter-bank market, the currency trade ended at a stable level of Rs124.24 on the last working day of the week on Friday, according to the State Bank of Pakistan (SBP).

“Market talk suggests the IMF has recommended further depreciation of the rupee to Rs150 to the US dollar if Pakistan wants to opt for a bailout to avert balance of payments crisis,” Exchange Companies Association of Pakistan (ECAP) General Secretary Zafar Paracha told The Express Tribune.

“Devaluation of the rupee to Rs150 seems unrealistic in the current scenario. However, if the government opts for the bailout, it will definitely let the currency weaken to Rs130-135,” he said.

Pakistan Forex Association President Malik Bostan said, “The currency market has faced panic buying as the government did not come forward to deny media reports.”

An IMF team is in Islamabad these days, holding meetings with Pakistani authorities to review the country’s economic performance.

Many are seeing the meetings as a prelude to negotiations for a new bailout for Pakistan, which is facing growing pressure on its external sector.

Finance Minister Asad Umar has reiterated that the meetings are not aimed at seeking a bailout and if the country requires an IMF loan programme, the government will formally apply for it later.

Despite the minister’s statement, currency dealers continued to ask the government to remove uncertainty by disclosing its actual plans.

“The market may remain uncertain in the next two to four weeks,” Paracha said. “The government must clarify the situation.”

The supply of dollars to the open market shrank further and impacted the rupee as potential sellers withheld dollars on expectations the rupee would further go down, Bostan added.

Banks are the second source of dollar supply to the dealers. They, however, remained closed on Saturday on account of weekly holiday.

The rupee should recover after the central bank tightened the monetary policy by increasing the benchmark interest rate by 100 basis points to 8.5% on Saturday, he said.

Stock market outlook

The increase in interest rate would strengthen the rupee and that should invite renewed buying, including from foreigners, at the Pakistan Stock Exchange (PSX) on Monday, Bostan said.

However, historical evidence suggests the PSX’s benchmark KSE-100 index will react negatively to the increase in the interest rate.

Bostan said banks may react positively to the rate hike as they would benefit from the move.

Dollar hovers around Rs130.5 in open market

Besides, those listed companies which are operating on heavy bank loans may react harshly and those running on low bank loans may face a low selling pressure.

Gold up

The All Sindh Saraf and Jewellers Association announced an increase of Rs450 per tola (11.66 grams) to Rs59,300 in the price of gold on Saturday mainly due to the downturn in the rupee.

“The downturn in the rupee has made gold expensive,” association’s President Haji Haroon Chand stated.

Besides, the price of gold, which is largely imported to meet local demand, surged to $1,192 per ounce (33.10 grams) in international markets from $1,183 a day earlier.

Rupee gains 0.68% as dollar inflow continues

An analyst at Pakistan Mercantile Exchange (PMEX) said the gold outlook remained negative internationally since the Fed continued to increase interest rate.

The market has continued to go down for the last two months, he recalled.

Published in The Express Tribune, September 30th, 2018.

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