"I do not see any genuine reason of this depreciation of the rupee against the green back," Emerging Economics Research Managing Director, Muzammil Aslam.
Currency dealers and analysts say that one of the reasons for the rapid depreciation of the rupee against the US dollar in recent days is speculation by the bankers, which is resulting in a faster depreciation of the rupee in the interbank market.
On Wednesday, the rupee showed a decline of over Re1 against the US dollar in the interbank market against the Tuesday’s closing interbank rates, closing at Rs107.30 against the Tuesday’s close of Rs106.10/106.20.
Speculations are rife that the interbank rupee rate is going to touch Rs108 or Rs109 against the dollar in a few days, currency dealers said.
“There is talk of rupee depreciation in the interbank market. And since there has been a gradual decline in rupee value for the last four to five days in the interbank market, this speculative news is gaining credibility in all circles,” said a leading money exchanger on condition of anonymity.
Dealers also say that the rupee has sharply depreciated because there is a strong demand for US dollars from people who are going on Hajj. But, they say that this dollar demand for Hajj season is going to reduce in the next one week.
Blaming everything on commercial banks, dealers say that the rupee is sharply losing 50 to 60 paisa’s against the dollar in the interbank market in the first two hours between every day. “And, this is happens even before the opening of the currency dealers in morning hours,” a dealer said.
Emerging Economics Research Managing Director, Muzammil Aslam, told The Express Tribune that the biggest reason for the rapid depreciation of the rupee is speculation in the market. Bankers and speculators know that the central bank is buying dollars to meet conditions set by the International Monetary Fund (IMF), he added.
“I do not see any genuine reason of this depreciation of the rupee against the green back. Pakistan is not paying any payment for oil and any other major imports. This is why I say banks and other speculators are indulging in speculation,” he said.
JS Global Capital Analyst Atif Zafar said that the central bank bought $125 million from the open market last month which had put pressure on the rupee in the market. Furthermore, it is very clear that the central bank is not intervening in the market to support the rupee against US dollar, which is helping the dollar appreciate in value, he added.
However, like currency dealers, Zafar also pointed towards the Hajj season for the unusually high dollar demand in the market.
Published in The Express Tribune, September 26th, 2013.
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The said to be democratic government of PML(N), a government of the people, by the people and for the people, though claimed that Pakistan was passing through most critical stage and that it was not party to free slide of pak rupee and committed to bring down fiscal deficit significantly, but contrarily its Finance Minister, an accountant, announced two days ago fabulous fiscal concessions to the businessmen of the country impacting tax payers billions of rupees. One wonders the sincerity and wisdom of democratic government by this action in addressing the twin objectives of fiscal deficit and free unchecked continued decline in rupee rates.
In said to be democratic tenures unlike non democratic set-ups like Musharaf, we have seldom seen a situation in any scenario where the national currency would have strengthened or stabilized as the government unsuccessfully attempts to project by taking opposite steps. When Musharaf took over from PMLN, at that time rupee was traded at Rs.86 per$. He not only brought back rate to Rs.58 or lessor but throughout maintained it at Rs.60 per $ or so. Further by even free fall in rate no outstanding developments or welfare projects these said to be democratic governments either PMLN or predecessor can seek to claim at their credit to have performed or achieved rather all round degredation, poverty.
The continuous unchecked free sliding of national currency tend to be causing galloping inflation apart from robbing the people of Pakistan their hard earned purchasing power, eroding the worth of their holdings of monetary assets in national currency and above all losing the confidence in national currency as store of value.
This free decline in rates tempt to cause divesting their monetary holdings from national currency to foreign currency to save them from losses and earn. Hence it tend to trigger accelerator and multiplier effect as more and more money will chase foreign currency, its demand going higher and higher and so its value going up and up taking an unending vicious cycle and resultantly leading to debasement of national currency.
Another aspect to address inflation and to keep the national currency attractive as well as to offset the adverse impact of inflation and to help maintain confidence of people in it as store of value and so to also stabilize its parity rate is allowing interest rates substantially atleast in proportion. In Pakistan while Central Bank claims inflation in single digits, but ironically failed to tame the banks who on outstanding balances of their credit card holders charge interest @ 37% p.a., which in fact is the real interest and inflation rate.
On the contrary to savers which are considered the backbone of any financial or economic system of country, these very banks while utilising those funds of savers as a commodiy don’t even allow fair return on their savings and pay ridiculously low interest rate hovering around middle of single digit and thus gaining still wider margins of profits to keep on fattening them while discouraging savings. This practice of banks with which the Central Bank is fully privy rather partner (as it continued slashing the discount rate putting fatal blow on savers as well as on fixed income groups) is putting further pressure on national currency.
The said to be democratic government of PML(N), a government of the people, by the people and for the people, though claimed that Pakistan was passing through most critical stage and that it was not party to free slide of pak rupee and committed to bring down fiscal deficit significantly, but contrarily its Finance Minister, an accountant, announced two days ago fabulous fiscal concessions toLooks like the SBP intervened. The rupee has strengthened considerably since earlier today.
@Asif: Well said Asif. The depreciation is shocking because unemployment and inflation will hit the common man on the road and not the tax dodgers and loan defaulters. The KSE will rejoice and the bankers will reap profits and write off more debts owed by the rich. IMF, WB, and ADB are a total failure in Pakistan. Salams
The SBP spent $3.5 billion last fiscal defending the rupee. Despite this the PKR depreciated 5.3% in nominal terms! Now the SBP has run out of dollars and its hands are tied. So the depreciation will continue. The rupee was overvalued for a few years now. What we are seeing is a correction in its value. Basically 2-3 years worth of depreciation compressed in a 6-8 months period.
We all know what is happening and what the plan is, please stop trying to fool the public. We know how USD remained stable between Rs 60 during Musharraf time and how it quickly jumped to Rs 80 & then Rs 90 when PPP govt came in. And now why it is going up, it will reach Rs 114 by the end of this year & to Rs 127/USD by the end of fiscal year in June 2013.