KARACHI: The rupee, while maintaining its downward march, crossed the threshold of Rs141 against the US dollar for the first time in history following the government’s apparent acceptance of the International Monetary Fund (IMF) demand to partially end state control over the exchange rate.
With a fresh drop of Rs0.20, the rupee has cumulatively depreciated Rs2.55, or 1.8%, in four weeks and closed at Rs141.09 against the greenback in the inter-bank market on Tuesday.
“The rupee is moving downwards on market expectations based on (weak) economic fundamentals,” State Bank of Pakistan (SBP) spokesman Abid Qamar told The Express Tribune.
He agreed that market expectations for the Pakistan-IMF loan deal and outlook on the balance of payments deficit - lower dollar inflows than outflows - were pulling the rupee down.
“This (fresh rupee depreciation) comes after news reports that Pakistan will be opting for a flexible exchange rate and abandon the existing managed float mechanism,” Topline Securities commented. Finance Minister Asad Umar said on Monday, “A flexible (rupee-dollar) exchange rate will be introduced…and that Pakistan is about to sign a long-term loan agreement with the IMF.”
Earlier, the IMF had linked the loan with letting the rupee free from state control.
“Latest reports suggest that either the monetary policy committee or a committee to be constituted shortly will determine the rupee-dollar exchange rate going forward and state control over the rupee will come to an end,” said Pakistan Forex Association President Malik Bostan. This is the seventh round of rupee deprecation since December 2017. The rupee has cumulatively dropped 33.7% since then.
Rupee recovers in open market
Contrary to the downward trend in the inter-bank market, the rupee recovered Re1 and closed at Rs142.5 to the greenback in the open market.
The recovery came after the central bank called currency dealers and asked why the spread between inter-bank and open markets was widening and reminded them that the rupee’s value in the open market should not be more than one-percentage-point higher than the value in the inter-bank market.
“The rupee recovered in the open market after the State Bank of Pakistan told currency dealers to keep the spread up to one percentage point,” Bostan added.
Experts said the rupee may drop to Rs147 to the greenback by June 2019. “We anticipate the rupee will hit Rs147 to the US dollar by June,” said Arif Habib Limited Head of Research Samiullah Tariq.
He said the current account deficit had narrowed in first eight months of the current fiscal year, but was still higher. “The deficit will not let the rupee stop the downturn,” he said.
Other research houses and currency dealers anticipated that the rupee would be around Rs145 to the US dollar by June 2019.
Gold at all-time high
Meanwhile, the rupee deprecation in the inter-bank market forced jewellers to increase gold prices by Rs650 per tola (11.66 grams) to a new all-time high at Rs71,200 on Tuesday.
The surge in the domestic market came despite no change in bullion prices in the international market where the price remained stable at $1,291 per ounce (31.10 grams), the All Sindh Saraf and Jewellers Association (ASSJA) reported.
An office-bearer of the association said they increased prices to adjust the rupee depreciation.
Pakistan, a relatively small bullion market which largely relies on imports, issues gold prices every day after incorporating factors like gold prices in world markets, movement of the US dollar in international and domestic markets and demand-supply of bullion in domestic markets.
Published in The Express Tribune, April 3rd, 2019.
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