The rupee's downward spiral continued on Wednesday for the third consecutive day as it plunged by Rs4 against the greenback and was being traded at Rs226.51 in the inter-bank market.
The rupee fell 2% on Monday, and 3% on Tuesday, despite last week's staff level agreement reached with the International Monetary Fund (IMF) that would pave the way for a disbursement of $1.17 billion under resumed payments of a bailout package.
The current downturn of the rupee against the US dollar was not due to economic fundamentals, but because of political turmoil, Finance Minister Miftah Ismail said.
"The panic in the market is primarily due to political turmoil, which will subside in a few days," Ismail told Reuters, adding that he expected pressure on the rupee to fall in the next few days.
"There is panic in the market, I fear it (the rupee)will go down further," Zafar Paracha, Secretary General of a foreign exchange association, the Exchange Companies of Pakistan, told Reuters. Paracha said he did not see any reason for the depreciation in the rupee other than a possible IMF pre-conditions.
Neither the government or the IMF have said anything about the need for any further depreciation of the currency, though Pakistan recently adopted a market-based exchange rate under advice from the IMF under the economic reforms agenda.
"The recent movement in the rupee is a feature of a market-determined exchange rate system," the State Bank of Pakistan said in a series of Twitter posts late Tuesday night, adding that rupee's depreciation against the dollar is in large part a global phenomenon.
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The State Bank of Pakistan on its official Twitter handle said: “The recent movement in the rupee is a feature of the market-determined exchange rate system. Under this system, the current account position, relevant news items, and domestic uncertainty together determine daily currency fluctuations.”
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Recent rupee depreciation against the US dollar is also a part of a global phenomenon.
“Globally, the US dollar has surged by 12% in the last six months to a 20-year high, as the Fed has aggressively raised interest rates in response to rising inflation,” the SBP said.
The free fall of the Pakistani currency accelerated after Fitch Ratings downgraded the country’s credit rating outlook to negative from stable before domestic financial markets opened, BMA Capital Deputy Head of Research Abdul Rehman told The Express Tribune.
The global credit rating agency revised its outlook on Pakistan even though it strongly expected the revival of the IMF loan programme for Islamabad soon. It, however, still found Pakistan short of foreign funding against its high requirement amid rising political temperatures and economic meltdown in the country.
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