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Thursday March 28, 2024

Rupee may weaken

By Our Correspondent
March 24, 2019

The rupee fell in its value against the dollar during the outgoing week on heavy dollar buying from banks and importers.

It traded at 139/dollar during the four trading sessions, crossing the 149 mark and closing at 140.24 against the greenback on Friday.

The currency saw a steep decline as the country prepared for the International Monetary Fund (IMF) staff level negotiations. Declining net international reserves of the central bank also weighed on the currency.

The fear that a more flexible exchange rate system would be adopted to obtain the IMF programme dragged the rupee down further.

The rupee dropped by 0.53 percent or 75 paisa against the dollar in the interbank market in the last trading session. In the open market, the rupee traded at 139.70 to 141.40 against the greenback in the week under review.

The statement of the finance minister early this week, regarding the timing and pace of adjustments on flexible exchange rate, fuelled the fears of further rupee weakening and accusations that the central bank would follow a market-based free-float exchange rate policy moving away from a managed one. In the past, it was a matter of difference between Pakistan and the IMF. However, the ministry has assured the financial markets that it was not embarking on currency depreciation to secure the IMF bailout.

Khaqan Hassan Najeeb, Finance Ministry’s spokesman, said discussions with international partners did not entail any target level of exchange rate. “Focus is on further strengthening the exchange rate regime, aligning it and keeping it consistent with the evolving macroeconomic fundamentals of the economy,” Najeeb said in a tweet.

Currency traders said there was heavy dollar buying from importers and banks. The central bank was not spotted intervening during the last day of the week despite the demand pressures.

“There were some (in rupee term) Rs76 billion in imports and debt payments-related outflows from the market,” a trader at a mid-tier bank said. Many analysts see entering the fund’s programme as a basis for a sustained depreciation trend for the domestic unit.

“The rupee is expected to weaken to 142-145 by the end of next month,” an analyst said. “It has been discussed with the IMF that complete free-float exchange rate mechanism is not possible in our economy due to the shallowness of the forex market.”

Analyst Yaqub Abubakar of Tresmark Research said, “The central bank may prefer weakening the currency in small bouts to avoid widespread criticism and the new band seems to be 139.50 and 140.50.”