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March 14, 2020

Hot money worth $824 million leaves Pakistan

Business

March 14, 2020

KARACHI: Pakistan has seen hot money amounting to more than $800 million flee the country in less than a fortnight, the central bank’s data showed on Friday, indicating a pressure on the foreign exchange position, but analysts now see lull to follow the ides of March.

The State Bank of Pakistan’s (SBP) data showed that foreign investors divested $824 million from treasury bills and Pakistan Investment Bonds (PIBs) during the 12-day period of the ongoing month. The offloading was equal to 72 percent of the total divestment from treasury bills and PIBs between July 1, 2019 and March 12, 2020.

The government attracted $3.4 billion of investments into short-term bills, having maturity of up to one year, during the period since it allowed foreign investments in the bonds to garner support for the external account sector.

Analysts said the capital flight would take a breather in days to come as the central bank appears to intervene into the matter to create a ground for rate cut.

“This also reflects in gradual appreciation of rupee against the US dollar,” an analyst said. A State Bank of Pakistan’s (SBP) official said exchange rate improved as hot money pressure eased, but the official denied that there was any intervention by the central bank.

“The currency move is market-driven,” the official said, requesting anonymity. On Friday, the rupee was seen recover 16 paisas to end at Rs158.97 against the US dollar in the interbank trade owing to supply from export earnings and monitoring of the central bank.

Currency dealers said the rupee remained under pressure at the start of trading following sharp decline in world stocks, especially the US bourses. The dealers said the panicky foreign investors of local debt market continued to sell treasury bills.

The dealers said the support, however, arrived in shape of the selling of dollars by the exporters and “monitoring of the central bank”. Banking sources said the central bank is probing speculative trading to stabilise the market after the rupee fell 3.16 percent or Rs4.89 during March 9 – 12.

The finance ministry began vigilance on buying and selling of the dollar during the past five days. The SBP would need reasoning to bring down interest rates from the decade-high of 13.25 percent. Though inflation eased to 12.4 percent in February from 14.6 percent in January, yet the hammered rupee could dilute the logic behind the rate cut as it would warrant a tight monetary policy to curtail subsequent fallout on current account.

Currency dealers also expected the rupee plight to be transitory in nature and its rebound as the foreign investors would check their dollar demand. Market sources said the exchange rate would stabilise during the next week due to the measures taken by the government authorities.

The rupee has seen massive decline during the past couple of years due to higher oil prices and weaknesses in the economy.