KARACHI: The rupee fell to another all-time low on Friday, continuing its record-setting spree, as political uncertainty outweighed the positive impact of Chinese rollover of $2.5 billion in commercial loans for one year, dealers said.
The rupee ended at 184.09 per dollar, compared with the previous close of 183.48 at the interbank market. It also weakened 50 paisas to close at 185.50 per dollar at the open market. The rupee has already tumbled more than 4 percent this year to a succession of record lows. The currency’s steady depreciation has pushed up the price of imports and helped propel the annual inflation rate to 12.72 percent in March.
Bloomberg reported that political upheaval is adding to a surge in Pakistan’s default risk and triggering off further losses in the nation’s bonds and currency. A no-confidence motion against Prime Minister Imran Khan scheduled for Sunday threatens to further destabilise the economy and jeopardise a crucial funding package being negotiated with the International Monetary Fund (IMF).
The government said last month talks with the IMF are continuing and it remains committed to completing the program successfully in September. “How Pakistan will approach the IMF programme from this point on is uncertain, and its participation could be in doubt,” rating agency Moody’s said in a research note. “Pakistan is encumbered with surging inflation and widening current-account deficits amid rising global commodity prices.”
Investors are concerned the political struggle will distract the authorities from focusing on the yawning current-account deficit. The country’s default risk as measured by five-year credit-default swaps has climbed to the highest since 2013 after nearly doubling last month.
“In the near term, there is a possibility that Pakistan bonds remain weak on elevated worries about emerging-market fund outflows, higher energy and food prices,” Avanti Save, an Asia credit analyst at Barclays Plc in Singapore, wrote in a research note.
One-month rupee forwards fell 0.7 percent on Friday to 189.25 after sliding 3.1 percent on Thursday. The 5.625 percent dollar bonds due in December have already tumbled 5 percent this year, according to data compiled by Bloomberg.
“Markets are justifiably jittery about the no-confidence vote, as Khan’s ouster could undermine Pakistan’s reform agenda and IMF programme, both of which are essential to containing Pakistan’s growing external imbalances,” said Patrick Curran, a senior economist at Tellimer Ltd. in London. “The rupee is likely to fall to 200 per dollar by the end of June.”