ISLAMABAD: Emerging markets currency turmoil and higher oil prices are increasing pressure on State Bank of Pakistan (SBP) to devalue the rupee for a fifth time in a year, analysts said on Wednesday.
The rupee is down 20 per cent since December as dwindling foreign currency reserves paired with a widening current account deficit prompted successive devaluations by the central bank.
On Wednesday, the rupee closed at 124.2 per US dollar in the official interbank rate and 127.5 on the open market.
The central bank hiked its policy interest rates by 100 basis points to 8.5pc last week, but that won’t be enough to prevent depreciation, research agency Fitch Solutions said in an investors note.
“We remain bearish on the Pakistani rupee as the currency is likely to remain under depreciatory pressures with weaker external finances,” it said.
Pakistan’s economy has been wobbly for months, triggering speculation that Prime Minister Imran Khan’s new government may request the country’s 13th International Monetary Fund (IMF) bailout since late 1980s, though the administration calls that a last resort.
The state bank’s foreign reserves were down to $9 billion in the week ending Sept 19, enough to cover just two months’ worth of imports and down some $300 million from the previous week, according to SBP data.
Now, rising energy prices are draining foreign reserves in emerging markets dependent on oil imports. Pakistan’s neighbour India saw its currency fall to a record low of 73.40 rupees per dollar this week.
The external pressure has ramped up pressure on Pakistan’s thinly traded rupee, widely considered to be under a managed float.
It’s unlikely the central bank can defend the rupee at current levels for much longer, said Saad Hashemey, research director for Pakistani brokerage Topline Securities. “Given the foreign exchange reserves at the SBP, I don’t think the bank has enough fire power to bring the rate down,” he said.
He added he expects “a slight devaluation at this point, and then eventually a 135-140 level in the next eight to 12 months”.
Khan’s government has been seeking alternatives to going back to the IMF, but recent visits by Chinese and Saudi delegations have not yielded any new bridge loans or deferred-payment deals on oil.
Before Khan’s election, previous government had acquired several billion dollars in emergency loans.
Published in Dawn, October 4th, 2018