Rupee at all-time low of 122/dollar in open market

KARACHI: Low dollar inflows and devaluation of rupee at the interbank market sent the currency down to an all-time low of 122 against the greenback in the open market, dealers said on Tuesday.

“In the kerb market, the local unit pulled down by sharp currency devaluation in the interbank dealings,” Zafar Paracha, secretary general at Exchange Companies Association of Pakistan said. “There is no demand-driven panic in the open market. Lower inflows also weighed on the currency. Ramzan and Eid related inflows have declined 10 percent this year.”

Rupee closed at 121.50/dollar in previous trade.

Paracha said there was a shortage of foreign currency in the open market and the dollar was not even available at the rate of 123.

Malik Bostan, president of Forex Association of Pakistan, said the rupee is expected to witness some more correction in the coming sessions.

However, forex markets are convinced that the local unit would not surpass the 120 level in the interbank market at least in near-term.

Reuters adds: The rupee slid against the dollar for a second day before paring some losses, dealers said on Tuesday, noting the central bank may have stepped in to stabilise the currency.

The rupee slumped 3.8 percent on Monday in what appeared to be the third currency devaluation by the central bank in seven months amid fears of a balance of payments crisis.

The rupee fell to 122/US dollar in early trading on Tuesday after closing at 119.85 previously but within an hour it had recovered to 120.20 by noon.

“People were expecting that the dollar will further shoot up, but apparently the central bank has played some role resulting in a slight recovery,” Fawad Khan, head of research at BMA Capital, told Reuters. “It seems that the rupee will continue to trade around 120 on Tuesday.”

The State Bank of Pakistan is the most influential player in the thinly-traded local foreign exchange market and controls what is widely considered a managed float system.

A spokesman for the central bank would not confirm or deny any intervention on Tuesday.

“Intervention, if any, is a purely management decision not necessarily to be shared,” spokesman Abid Qamar said.

The State Bank of Pakistan has allowed the rupee to drop three times since December to try to boost exports amid falling foreign reserves.

The latest apparent devaluation shows signs of vulnerability in Pakistan’s nearly $300 billion economy, as dwindling foreign reserves and a widening current account deficit trigger speculation about going back to the International Monetary Fund for loans for the second time since 2013.

The rupee’s decline threatens to squeeze consumers ahead of a general election set for July 25. The interim setup, which was installed after the outgoing government completed its term on May 31, is supposed to run only day-to-day affairs until a new government assumes office.

The economic outlook has been hurt by the fast depletion of foreign currency reserves, which now stand at just over $10 billion.

Meanwhile, current account deficit is at $14 billion, around 5.3 percent of gross domestic product.