Pakistani rupee plunges 8% as 13th IMF bailout talks loom
ANALYSTS CALL IT A DE-FACTO DEVALUATION WITH COUNTRY FACING BALANCE OF PAYMENTS CRISIS
In a apparent devaluation move, the Pakistani rupee tumbled as much as 8.7 per cent yesterday as the country eyed a bailout for the 13th time by the International Monetary Fund to avert a balance of payments crisis.
With this, the rupee saw defacto devaluation for a fifth time by the central bank of Pakistan since December, and the currency losing more than a fourth of its value since the start of the year. This rout occurred against the backdrop of dwindling forex reserves, which fell to $8.4 billion in the week ending September 28, the lowest in four years, to pay external debt servicing.
Yesterday the Pakistani rupee tumbled to a record low of 134 per dollar, down 8.7 per cent on the day, before closing 4.31 per cent higher at 128.48. However, Pakistani stocks snapped a sixday losing streak to close more than 1 per cent higher. The Pakistan Karachi All Share Index closed 1.27 per cent higher at 28,299.34.
“Earlier, there were talks of funding coming into Pakistan through the CPEC (China–Pakistan Economic Corridor), but of late there have been doubts on investment cuts. The IMF has also been approached by Pakistan to overcome the financial crisis. This ensuing economic instability has led to a steep fall in the Pakistani ru-
pee,” Adeeb Ahamed, managing director at Lulu Financial Group, told Gulf News.
The Pakistani rupee has shed 16 per cent of its value so far this year, joining its peers with other emerging market currencies such as the Indian rupee, Argentine peso and Turkish lira.
“Local news reports from Pakistan suggest the currency was intentionally weakened to fall in line with the strict conditions
laid down by the IMF. It is popular wisdom that the IMF is not an easy institution to deal with, especially when under financial distress,” Vijay Valecha, chief market analyst, Century Financial, said. Analysts say Pakistan may approach for a bailout of $8 billion from the IMF, and according to Finance Minister Asad Umar the talks may take place later this month.
The Indian rupee continued its losing streak for another session to hit a fresh new low.
The Indian rupee hit its record low of 74.3938, before closing 0.43 per cent higher at 74.3875.
“[The] rise in crude oil prices above the $84 (Dh309) per barrel mark again and unabated foreign fund outflows weighed on the rupee,” Vijay Valecha, chief market analyst, Century Financial said.
The currency has lost 16.46 per cent of its value, making it the worst performer in Asia. The fall has been attributed to global and domestic cues such as monetary policy tightening in the US, resulting in dollar strength and subsequent withdrawal of foreign portfolio investments. Additionally, the rising price of crude oil, which accounts for more than 30 per cent of India’s imports, and the absence of decisive intervention in the market has been driving down the currency.
A weak trade position accompanied by a bulging current account deficit has made the rupee’s position even more precarious.
The current account deficit in the first quarter of 2018 widened to $15.8 billion, around 2.4 per cent of the country’s gross domestic product (GDP), higher than the $15 billion recorded in the corresponding quarter a year before.
“The fiscal and current account
The currency has lost 16.46 per cent of its value, making it the worst performer in Asia. The fall has been attributed to global and domestic cues such as monetary policy tightening in the US, resulting in dollar strength.
deficits have deteriorated as a percentage of gross domestic product, as oil has become more expensive. This has been further exacerbated by the decline in the currency,” Mark Shirreff Matthews, Head Research Asia, Julius Baer said.
The dollar’s ascent has also meant pain for emerging market currencies such as Turkish lira, Argentine peso, Indonesian rupiah, Brazilian real, among others.
The Turkish lira has shed more than 61 per cent of its value so far in the year, while the Argentine peso has lost more than 100 per cent of its value since January 1.