The rupee continued to lose ground against the dollar on Friday, hitting yet another record low of Rs228 interbank trade as concerns remained over the exchange rate volatility and analysts called for the government and central bank’s intervention.
According to the Forex Association of Pakistan (FAP), the rupee depreciated 75 paise — a slump of 0.33pc — against the previous day’s close of Rs227.75 to reach Rs228.50 by 12:35pm.
The FAP’s closing rate of the last session was higher than the State Bank of Pakistan’s (SBP’s) closing rate of Rs266.81.
By the day’s end, the greenback was at Rs228.37, depreciating 0.68 per cent from the SBP’s closing rate.
Today’s decline in the rupee’s value is in continuation of its freefall against the dollar witnessed throughout this week.
‘Bitter fact, but not an exception’
According to Mettis Global Director Saad Bin Naseer, the depreciation of the rupee against the dollar is a “bitter fact” but not an “exception”.
“All currencies are depreciating against USD, not only PKR,” he told Dawn.com.
Saying so, Naseer outlined several measures that he said were needed to restore confidence among the public that Pakistan was “not going to default by any means”.
“Exporters should be bound to surrender remittances as early as possible, and it’s time for the central bank to come into action with full force and make sure that no one is taking undue advantage of the current situation,” he said, without elaborating further on this.
The analyst further suggested that a “ceiling should be introduced on regular basis and the SBP should step in as they do in the money market to mop up or inject the PKR”.
Naseer added that “hard measures” were needed “before a crisis hits us hard and we are left with no option except to take desperate measures as in 1998”.
In 1998, Pakistan faced an economic crisis after the then-government introduced a new exchange rate system.
SBP, govt’s intervention stressed
Like Naseer, Komal Mansoor, head of research at Tresmark, also called for the SBP’s intervention and warned that the “rupee risks to be squeezed further” otherwise.
She highlighted that banks were short in nostros — accounts that a bank holds in a foreign currency in another bank — while the SBP was also not providing forex liquidity.
“This is proving to be difficult for all stakeholders as trade has become erratic,” she said and pointed to a backlog of containers at the port as another factor adding to the problem.
‘Political turmoil, speculation’
Exchange Companies Association of Pakistan General Secretary Zafar Paracha described the current situation as “uncertain” and complained of banks being involved in “speculation” in the currency market while the “government has no control over them”.
He recalled that when a situation similar to the present one was faced in the past, the government and relevant departments would approach exchange rate companies for their suggestions and implement their recommendations.
“This would improve the situation,” he said, claiming that this time around not all of the suggestions proposed by exchange rate companies to meet the current economic challenges had been implemented.
One of the suggestions he said he had made to Prime Minister Shehbaz Sharif was to “tack our imports with exports”.
“Our imports shouldn’t exceed our exports in any case,” he stressed, regretting that the suggestion had not been implemented.
Paracha further suggested and cut down on government expenditure by 30 per cent to 40pc, warning that “we will head to a default fast” otherwise.
“But it seems that our political parties have mentally accepted that we [are heading to a] default,” he lamented.
Paracha also called for political parties to set aside their differences and unite on a “one-point agenda of economic revival”.
‘Glass half full approach’
These calls for intervention by the authorities come on the heels of the government assurances that Pakistan was not heading to default and the rupee had stabilised.
On Thursday, Finance Minister Miftah Ismail claimed during a press conference that the currency market was now under control after the coalition partners announced to complete the remaining constitutional term until June next year.
The minister said the country had ample amount of fuel reserves, which was a reiteration of the assurance that Energy Minister Khurram Dastgir gave earlier in the day, saying that petroleum product stock were at a “record level”.
Ismail maintained that the economy was on the right track and all indicators, apart from the exchange rate, were positive. He added that the country’s imports had also been brought under control, which would help improve the situation further.
The assurances were made even as businessmen warned that Pakistan may face a Sri Lanka-like situation and industry leaders slammed the government over what they said was its failure to deal with economic challenges. They called for imposing an economic emergency.
Concerns about the exchange rate were also raised by Prime Minister Shehbaz Sharif during a cabinet meeting on Thursday.
However, Ismail, who was also present at the meeting, assured the meeting that “all necessary steps are being taken to bring down the dollar rate and by the next month the rupee will stabilise against the dollar”.
The rupee appreciated to 204.56 in the first week of July after touching 211.93 on June 22. It kept losing its value against the dollar but registered a minor appreciation when the country reached its staff-level agreement with the IMF on July 15.
It has continued to fall in every session since then.
The SBP attributed to the “market-determined exchange rate system” under which the current account position, news stories and domestic uncertainty contribute to the daily currency fluctuations.
In an apparent attempt to downplay the depreciation, the SBP said a “better measure” of the rupee’s strength is the real effective exchange rate, which takes into account the currencies in which Pakistan trades in inflation-adjusted terms.
More to follow