Spiralling currency

Wednesday morning saw the rupee fall to a(nother) record low. Perhaps the most worrying thing till the writing of this editorial was that there was no official response to the rupee depreciation from either the State Bank of Pakistan (SBP) or the federal government. The feeling in the market is growing that the rupee is going to keep falling and there will be no one to reassure us that all is well. While official data reported the interbank rate of around Rs160.5, some media channels were reporting the rate as high as Rs162 to the dollar. The speculation is not helpful, although it is certainly understandable. There are widespread reports that the dollar is selling for a premium price outside the formal markets, due to legitimate uncertainty about the stability of the value of the Pakistani rupee. In the month of June alone, the Pakistani rupee has depreciated by 8.2 percent. If the trend continues, we could be looking at a fairly high drop in the value of the Pakistani currency in the coming months.

The 10-month reign of the PTI has seen the highest decline – in such a short – of the value of the Pakistani currency. While the rupee had begun to drop when the PTI took power, the currency was still hovering around Rs123 to the dollar in August 2018. Some investors are of the view that the rupee could fall to Rs180 by the end of the year. This will mean that, effectively, the Pakistani currency will have lost almost half of its value within a single calendar year. The government has been quick to blame previous governments for almost all economic woes, but has also defended devaluation. This Janus-faced stance on rupee depreciation has done more harm to the market, which needs the government to show that it knows what it is doing – even if it does not.

There is a feeling that any intervention in the falling rate of the Pakistani rupee will lead to heads rolling. Already, there whispers about former finance minister Asad Umar having ruled out further devaluation of the rupee in April. Since then, the SBP chairman also lost his job, which creates a situation where officials can fear reprisals for trying to keep the exchange rate in check. With Pakistan’s foreign exchange reserves still coming in at under $9 billion, the situation of the exchange rate remains precarious. For those hoping that the exchange rate will stabilise, there is little hope on the horizon.