Rupee loses another 2.2 percent

KARACHI: Rupee continued to move on the downward trajectory on Tuesday, losing another 2.23 percent to the US dollar in the interbank market, but analysts believed that there is still a room for further depreciation.

The State Bank of Pakistan (SBP) quoted the rupee at 110.63 to a dollar compared with the previous closing of 108.41. In early session, the pair traded at 111.50. In open market, rupee traded at 111.80/112.

Traders and dealers said rupee was broadly lower as the currency’s fluctuation kept the market participants uncertain about whether there would be gradual increases or rupee would find stability at the 110 level.

The rupee, which has mostly traded in a tight range of 104-105 per dollar since December 2015, shed over five percent in the past three sessions.

“…the central bank decided to let the currency find its equilibrium based on demand and supply,” Mohammad Sohail, chief executive officer at Topline Securities said.

A currency dealer said it seems the central bank continued with its policy to allow the adjustments in the exchange rate to help contain balance of payments pressures.

Analysts said rupee is likely to decline further as it is overvalued by more than 10 percent, indicating a room for further decline.

“The current price movement shows the unit to extend losses,” an analyst said. “The

market is anticipating a new support level of 112 in near-term.”

Another analyst said rupee is unlikely to consolidate at the 115 level.

Government has so far adopted a strong rupee policy and converted the regime into an almost-fixed exchange rate – one that caused drop in exports and remittances.

The rupee devaluation might be in line with the demand of the International Monetary Fund, which has always advocated a flexible regime to allay balance of payments difficulties.

Overvalued exchange rate discouraged exports, encouraged imports and kept the rupee cost of foreign debt servicing below what it should be under an appropriate level of the rate of exchange.

But, an analyst said the timing of depreciation is a bit unfortunate “as we’ve just floated Eurobond and no investor likes uncertainty”.

Reuters adds: The SBP’s withdrawal of support for the rupee was widely seen as a devaluation measure since the central bank is the most influential player in the thinly traded local foreign exchange market and controls what is widely considered a managed float system.

“Presently, the central bank is allowing the market to determine the rate, but it seems to be reversing the extreme volatility if any during intraday trading,” Muzzammil Aslam, chief executive officer of EFG Hermes Pakistan, told Reuters.

The central bank said after market hours on Friday that a weaker rupee would help the economy grow and ease balance of payments pressures, comments that market participants interpreted as SBP’s approval of a weaker rupee.

“I see the rupee settling somewhere from 110 to 111, I think it would not be allowed to pass 112,” said Samiullah Tariq, director of research at brokerage firm Arif Habib.