Rupee plunges in open trade on the verge of IMF deal

KARACHI: The rupee on Saturday lost approximately 1.58 percent against the US dollar in open trade with dealers attributing the currency’s fresh lows to panic-driven greenback shortage in the market as Pakistan and IMF are currently fine-tuning an economic assistance program.

Many currency dealers said the rupee was trading at 145 against the dollar. The rupee ended at 142.70 versus the greenback on Friday. The Exchange Companies Association of Pakistan (ECAP) quoted the rate at 142 to 142.50/dollar, while Forex Association of Pakistan said the rupee was trading at 143.50/dollar.

Zafar Paracha, general secretary of ECAP told The News that there has been a massive demand for buying dollars at higher prices.

“The rupee remained under pressure fueled by shortage of the greenback in the market,” Paracha said. “We are short of dollars. There is no liquidity available in the kerb market to meet foreign exchange demand.”

ECAP President Malik Bostan agreed that there was panic in the market. “But, the rupee didn’t trade as high as 145 in the open market,” Bostan added. “We have contacted an executive director foreign exchange policy department at the SBP (State Bank of Pakistan) and requested him to take out any statement to ease panic in the open market.”

The rupee fell 120 paisas to 142.70 to the greenback in the open market during the week.

The interbank market is closed on Saturday. The rupee closed at 141.39 against the dollar in the interbank market on Friday compared with 141.38 in previous session. The rupee saw a mixed pattern against the dollar in the interbank market during the outgoing week. The rupee-dollar parity traded in ranges between 141.12 and 141.39 per dollar. The rupee closed the first trading session at 141.28 due to increased dollar demand from importers. The forex market was closed on Tuesday as banks remained closed on 1st Ramazan for deduction of Zakat.

Currency dealers said the rupee is likely to further weaken once the country signs a bailout agreement with the International Monetary Fund (IMF). Pakistan is currently negotiating its 13th IMF loan program since 1980s. The Fund’s delegation has been in the country for nearly two weeks, but the two sides couldn’t reach an agreement on tough conditions related to taxation, hike in policy rates and withdrawal of subsidies on power sector. But, a deal of $6-7 billion is expected over the weekend, according to analysts.

Analysts said the rupee might depreciate eight percent to 152-153 against the dollar in the interbank market following the IMF bailout program. They see the rupee to fall to 160-165 by the end of 2019.

Salman Shah, former finance minister said the government is expected to follow a managed float exchange rate after the IMF program.

“The likely devaluation is to be more natural,” Shah said. “The country needs to build up foreign exchange reserves. Foreign investments and privatisation inflows will bring stability to the currency market and support the rupee.”

The SBP’s foreign exchange reserves are showing an upward trend. They increased $179 million week-on-week to $8.984 billion during the week ended May 3. Robust remittances also bolstered the country’s weak external position. Workers’ remittances rose 8.45 percent to $17.875 billion in the first 10 months of the current fiscal year of 2018/19.

Currency dealers are eagerly eyeing an outcome of semiannual index review of Pakistan by the Morgan Stanley Capital International scheduled on May 13 (tomorrow) with analysts fearing downgrade of the country to frontier markets from the MSCI emerging market index.