KARACHI: In line with market expectations, the rupee hit a new record low at 140.24 to the US dollar in the inter-bank market on Friday on speculation that Pakistan had agreed with the International Monetary Fund (IMF) to let the currency depreciate ahead of obtaining a bailout.
With a fresh drop of Rs0.75, the rupee has cumulatively shed Rs1.70 to the greenback in the past two weeks, according to the State Bank of Pakistan (SBP).
The rupee lost value despite the Ministry of Finance's announcement that China would deposit $2.1 billion in the SBP's foreign currency reserves on Monday. Apart from that, Malaysia was to sign agreements for investment of around $800 million in Pakistan.
The Ministry of Finance has dismissed the speculation targeting the rupee-dollar exchange rate in tweets.
Finance ministry spokesman Khaqan Hassan Najeeb tweeted, "Clearly, no target rupee/dollar exchange rate is envisaged. The speculation is baseless and unfounded."
He stated that the SBP's economic model pointed to the real effective exchange rate at the equilibrium value, adding that the balance of payments stability had been ensured with the fall in current account deficit and more-than-adequate availability of foreign financing.
The spokesman clarified, "Discussions with international partners do not entail any target level of the exchange rate. Focus is on further strengthening the exchange rate regime, aligning it and keeping it consistent with evolving macroeconomic fundamentals of the economy."
Experts, however, said the drop in rupee value was not surprising and was well in line with expectations because of the reason the country needed more dollars to make expensive imports as oil prices had gone up in the international market. Moreover, a large trade deficit has continued to mount pressure on the rupee.
"We have anticipated the rupee will drop to 142 (against the dollar) by the end of this month. Today's (Friday) drop is close to the expected rupee-dollar parity," a leading banker said and did not rule out further depreciation keeping in view high international oil prices.
Pakistan meets 70-80% of its oil needs through imports which come to around one-fourth of the total import bill of the country.
He said the country had apparently adopted the strategy of gradually adjusting the rupee against the dollar, which was easy for the businesses to absorb.
"The gradual adjustment is good rather than the local currency shedding value by a notable Rs5-10 as a sudden big drop causes losses to businesses," he said. "Oil prices have started moving up…that is the main source of pressure, which is coming on our currency."
Rupee drops to record low of 139.25 against US dollar
Apparently, the gradual depreciation of the rupee would continue throughout 2019. "We expect 7-8% drop in the rupee through the year," he said. "Large trade and current account deficits will drive down the rupee."
The head of a research house said recently that the rupee would remain under pressure as Pakistan was set to make big debt repayments next month. "Pakistan is scheduled to pay $1 billion for the maturing Eurobond. This will be in addition to other debt repayments and import payments."
Pakistan Forex Association (PFA) President Malik Bostan said the rupee had dropped against the dollar in the wake of speculation that Pakistan had apparently accepted IMF's conditions, including "leaving the rupee free from state control to obtain a bailout".
Published in The Express Tribune, March 23rd, 2019.
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