IMF mission visit puts rupee under pressure

KARACHI: The rupee tumbled in the interbank market on Friday amid fears that the currency will weaken further in the days ahead to satisfy the International Monetary Fund’s (IMF) condition of greater exchange rate flexibility to facilitate external adjustments for supporting exports, dealers said.

The rupee was down 0.61 percent or 82 paisas at 133.84 against the dollar in the interbank market. Tracking losses from the official market, the rupee fell to 133.20/dollar in the open market. It had closed at 133 in the previous session.

The rupee last hit a record low last month, at 133.64 in the interbank market. According to some dealers, rupee was expected to trade at 133/134 till the IMF delegation stayed in the country.

“Recent depreciation has taken place during IMF technical mission visit to Pakistan for package negotiation; market is expecting further rupee fall in the coming days to meet stringent IMF condition to keep rupee weak,” said a dealer at a leading bank. “The government wants to maximise exports and discourage imports by keeping the rupee weaker in the future.”

Since the start of this year, regional currencies namely Chinese CNY, Indian rupee, and Sri Lankan rupee have also weakened against the dollar, to keep their exports cheaper. As a result, we expect rupee to fall further in the coming days, the dealer said.

Another dealer said pressure against the local unit came renewed on Thursday due to increased dollar demand for import payments. “The market is functioning on demand and supply mechanism. Today, the central bank intervened less to support the currency.”

Eman Khan, an analyst at Tresmark Research, believes the depreciation could be explained by market forces driven by higher import payments. “Market participants acted very maturely, as we did not see them panicking during the day, as opposed to what has been happening in the past. This is a great sign for the industry as a whole,” Khan said. The IMF technical team has been in Pakistan since November 7 to hold negations for a possible $6-7 billion new bailout package.

The first phase of talks between the IMF team and Pakistani authorities concluded on Thursday, while the second phase will start from Monday. Finance Minister Asad Umar told media that Pakistan’s balance of payments worries were over amid latest pledges made by China and Saudi Arabia. However, there is no clarity on the nature of the expected financial assistance from China. The country is facing a $12 billion financing gap.

Pakistan’s official foreign exchange reserves fell $98 million to $7.679 billion as of November 2. The central bank’s reserves were weighed down by external debt servicing. Government last month reached agreement with Saudi Arabia on a rescue package, including $3 billion in foreign exchange support for a year and another $3 billion loans in deferred payments for oil imports to ease the balance of payments crisis. The rupee has depreciated by approximate 25 percent against the dollar since the start of December 2017.