Rupee continues to fall, hits fresh record low

KARACHI: Rupee weakened 1.5 percent to hit a new record low of 151.92 in the interbank market on strong dollar demand on Tuesday, ignoring hefty increase in interest rate a day earlier as analysts bet on the central bank’s much-needed intervention to tame the pressure on the local currency.

The rupee weakened from 149.65 in the previous session. The rupee also plunged in the open trade, tracking a weaker currency in the official market. The local currency slid by Rs3 to close at 154 against the dollar in the open market, further fading from the previous close of 151.

The latest devaluation came on the heels of the central bank’s explicit resolve to check ‘unwarranted volatility’.

“SBP will continue to closely monitor the situation and stands ready to take measures, as needed, to address any unwarranted volatility in the foreign exchange market,” the SBP said in a monetary policy statement on Monday. Currency dealers said the rupee is still above its real effective exchange rate (REER) and that might entail worst to come.

“The rupee is trading close to the REER of 104, which needs frequent devaluation,” a forex dealer at a leading commercial bank said, requesting anonymity. “However, the SBP has already said the rupee is in equilibrium and doesn’t need to further big devaluations. The currency is facing adjustment.”

Another trader however said there is no point in predicting a range for the rupee this week “but it seems to weaken further in times to come”.

Analysts linked the constant rupee beat-up to a loan deal with the International Monetary Fund (IMF) that is attached with stings, including market-determined foreign exchange rate.

Though the government and the central bank denied the rupee fall was not devaluation, market participants termed this an outcome of IMF’s six billion dollars worth of loan, whose approval should precede ‘prior actions’.

Pakistani authorities have been in negotiation with the IMF for a bailout deal for the last couple of months and the dollar continued to overpower the rupee during the period.

Overall, the rupee has depreciated by 37.45 percent since January 2018 to have become one of the 13 worst performing currencies in Asia.

Currency market is closely watching the SBP’s exchange rate policy moves and how it intervenes to arrest slide in rupee value that is also building up inflationary pressures. The rupee failed to take respite from an unabated downtrend with analysts dreading a flood of price waves to hit below the belt of masses.

The SBP has already warned that inflation would further increase from an average seven percent in the July-April period of the 2018/19 fiscal year. The headline consumer inflation was recorded at 3.8 percent in the corresponding period a year earlier.