Huge panic in Pakistani markets as rupee slides further record against dollar

KARACHI: The rupee slid further against the dollar on Wednesday, as the foreign exchange association warned that panic was spreading through the currency market following the sharp declines this week.

The rupee fell 2 percent on Monday, and 3 percent on Tuesday, despite last week’s staff level agreement reached with the International Monetary Fund (IMF) that would pave the way for a disbursement of $1.17 billion under resumed payments of a bailout package.

On Wednesday morning, the rupee was trading at 225 per dollar, having ended Tuesday at 221.99 after the Fitch ratings agency revised its outlook for Pakistan sovereign debt from stable to negative — though it affirmed Long-Term Foreign-Currency and Issuer Default Rating at “B-.”

According to the SBP, the rupee closed at Rs224.92 against the dollar, down Rs2.93 or 1.3 per cent, from yesterday’s close of Rs221.99.

“There is panic in the market, I fear it (the rupee)will go down further,” Zafar Paracha, Secretary General of a foreign exchange association, the Exchange Companies of Pakistan, told Reuters news agency.

Paracha said he did not see any reason for the depreciation in the rupee other than a possible IMF pre-conditions. Neither the government nor the IMF have said anything about the need for any further depreciation of the currency, though Pakistan recently adopted a market-based exchange rate under advice from the IMF under the economic reforms agenda.

“The recent movement in the rupee is a feature of a market-determined exchange rate system,” the State Bank of Pakistan (SBP) said in a series of Twitter posts late Tuesday night, adding the rupee’s depreciation against the dollar is in large part a global phenomenon.

Pakistan faces economic turmoil, with fast depleting foreign reserves, a declining currency and widening fiscal and current account deficits, and the rupee has lost 18 percent of its value since December 21.

Reserves have fallen to as low as $9.8 billion, hardly enough to pay for 45 days of imports.

Pakistan has also passed through another bout of political instability, with the government of Prime Minister Shehbaz Sharif taking over from ousted premier Imran Khan in April.

On Tuesday, sovereign dollar bonds issued by Pakistan suffered sharp losses to record lows after Fitch’s move, while the Pakistan Stock Exchange’s KSE100 Index fell 2.36 percent.

Big dip in gold price

Despite the rupee falling to a record low against the greenback, the price of gold on Wednesday witnessed a big dip.

According to details, the price of gold per tola of 24-carat has declined by Rs1200. With this decrease, the price of gold per tola of 24-carat is now traded at Rs144,000.

Meanwhile, the price of 10-gram gold of 24-carat has also decreased by Rs1028 to Rs123,457. The price of 10-gram gold of 22-carat has also dropped by Rs942 to reach Rs113,170. On the other side, the price of gold on the international market has also decreased by $9 per ounce to reach $1708.

Miftah Ismail blames ‘political turmoil’

Finance Minister Miftah Ismail said during a press conference in Islamabad that the country’s “trade fundamentals have been corrected” as a result of measures taken by the PML-N-led coalition government.

Finance Minister Miftah Ismail giving interview at his office in Islamabad.

He said the government had taken steps to reduce imports and saw success on this front to a certain extent in June.

“Non-energy imports reduced 15pc,” he said, adding that energy imports, however, rose rapidly owing to the significant increase in prices internationally in this sector. “And so, these imports increased 120pc last month.”

But, he continued, the government had taken several steps to cut down imports and “we have started to see results.”

He said the country had recorded imports worth $2.61bn till July 18, which indicated that imports would not exceed $5.5bn this month. “So, we will manage to bring down imports by around $2bn as compared to the last month,” he added. The minister further said he was expecting imports to decline further next month.

Citing a lack of foreign currency reserves and other resources, he said the government was trying to balance imports against exports and remittances.

He said this had been achieved to some extent, which meant that the country’s trade fundamentals had been corrected. “The value of our imports will almost be equal to the collective value of our exports and remittances, which is an ideal situation”.

However, he said, the country would still record a meagre current account deficit. “But that is a good thing for a developing country as this indicates foreign investment,” he added.

Political uncertainty hammering rupee

Mettis Global Director Saad bin Naseer said the freefall in the rupee’s value was continuing because the markets were without economic guidance amid the evolving political situation.

“For the market to stabilise, it will require some form of guidance on the political front from the PTI or the ruling coalition with respect to elections.”

He was referring to the PTI’s victory on at least 15 of the 20 Punjab Assembly seats, on which by-polls were held on July 17. Following the win, the PTI has claimed that incumbent Punjab Chief Minister Hamza Shehbaz has no justification to remain in the province’s top office, and at the same time is demanding fresh general elections.

Naseer also pointed out that while the State Bank has listed the domestic and international reasons for the rupee’s decline, the markets are worried about the future of inflows from the International Monetary Fund (IMF), friendly countries and other sources.