Rupee plunges to record low

KARACHI: Rupee plunged to a record low on Friday as speculative dollar buying continued to build pressure, with analysts terming central bank’s reluctance to support domestic currency an apparent move to meet International Monetary Fund (IMF) programme conditions.

The rupee hit a record low of 176 in intra-day trading against the dollar before closing at 175.73, below the previous close of 174.19. It fell by 3.06 percent during this week.

The rupee fell to 178 levels versus the greenback in the open market. It ended at 176.50 in the previous session.

These choppy trading sessions in the foreign exchange market in just two to three weeks were extraordinary as the country’s exchange rate was left to follow the market-based supply and demand situation. Generally, it is not left completely to the market forces.

The forex market has been moving on a sentiment and speculative basis. The rupee recovered from 175.27 on October 26 as a result of the announcement of a $1.2 billion deferred oil payment deal and $3 billion deposits from Saudi Arabia. This announcement gave confidence to the investors on the country’s currency and the prospects of the economy.

For now, the uncertainty over the completion of the IMF review to secure a $1 billion loan tranche has hurt the market sentiments. In addition to the uncertainty, import payments were also high last month due to surging current account deficit and spike in global commodity prices.

There are some other factors too which explain the slide in the rupee such as the appreciation of the US dollar against other global currencies on the back of record inflation, and funds from Saudi Arabia, which have not arrived yet.

The demand and supply situation, including elements of speculation and panic, were also there due to the above factors.

Interbank market faced speculations too as importers booked dollars at whatever rate was quoted by the banks due to low supplies.

Analysts said market participants were looking at the State Bank of Pakistan (SBP) to intervene, which could somewhat pull the rupee back.

“We are in the IMF programme and there are some prior actions to continue this so the central bank’s intervention would be difficult,” said Khurram Schehzad, the CEO of Alpha Beta Core.

“In the market-based exchange rate system, the rate is Continued from page I

determined by the demand and supply,” Schehzad said, and added the SBP should do it (support currency) temporarily like the global central banks do to control a high level of distortion and volatility in the market.

“Currency depreciation hurts the economy in many ways; it sends the inflation and the debt higher.”

Some analysts said the market was pricing in uncertainty over the IMF deal so the SBP was not intervening at this point of time. If it intervenes then the market forces would probably not let any equilibrium. Thus, the central bank was waiting for some measures of factoring to come in whatever the peak of the currency.

“The immediate level for the rupee looks at 178 levels” after that if there is clarity, the SBP would intervene, because at the current level of dollars “the market will still keep surging”, the analyst said.

Expectations that the market would calm down following Saudi ambassador’s tweet that the Kingdom would soon transfer cash assistance to Pakistan did not fall through, and nerves would likely remained stretched till an official announcement comes from the government on the position of the IMF’s bailout.

“It is difficult to predict a level for PKR in the near-term. We may see some stability or correction once Saudi funds arrive and a deal is reached with the IMF,” said Mustafa Mustansir, the head of research at Taurus Securities Limited.