News Desk |
The rupee continued its declining trend as the dollar ascends and rupee dropped to an all-time low of 148 to the US dollar in the inter-bank market on Thursday.
It further weakened by roughly Rs7 from Wednesday close of 141.4 in early hours of trade at the inter-bank. The greenback has climbed to hit a historical peak today with speculations that the rupee may slide further.
PM had requested Currency traders to resist pull against US$
Naveed Vakil, Chief Operating Officer (COO) of AKD Securities, while talking with GVS said that: “The PkR move in the interbank market against the Greenback was expected following the SLA with the IMF and upside pressure over the last two days in the open market” but he argued that this is a bit shocking immediately after the media reports that Prime Minister himself has advised the currency traders to hold pull against the US dollar.
To many observers this creates the impression that government of PM Imran Khan has little control on the situation. Naveed Vakil, COO AKD Securities also expressed his concerns, “this created concerns across markets especially considering yesterday’s media statements of Government officials meeting exchanges companies in the open market to maintain exchange rates…”
However he also thought that US $ has probably reached its highest or near highest point against the Pakistani Rupee. “..That said given the cumulative level of adjustment since 2018 we should now be at the tail end of devaluation pressure at least for the near term”, argued Naveed Vakil, COO AKD Securities.
Because of the speculations that rupee would further depreciate because of the signing of a bailout package with the International Monetary Fund (IMF), the US dollar had gained Rs2.25 against the rupee in the open market on Wednesday. But this is mostly due to speculations, many financial experts point out that Pakistani Rupee is not overvalued at this point. According to theme, it is around 100 or 101 at the Real Effective Exchange Rate (REER)
ECAP president Malik Bostan, while giving proposal on how the government could control devaluation of the rupee said that here was no shortage of foreign exchange in Pakistan.
The experts said that the current devaluation of the rupee is because of the IMF statement stating that “a market-determined exchange rate will help the functioning of the financial sector and contribute to a better resource allocation in the economy.”
“The State Bank of Pakistan will focus on reducing inflation, which disproportionately affects the poor, and safeguarding financial stability. A market-determined exchange rate will help the functioning of the financial sector and contribute to a better resource allocation in the economy. The authorities are committed to strengthening the State Bank of Pakistan’s operational independence and mandate,” the IMF statement read.
Apparently, they said, the financial markets have not responded favorably to the IMF’s announcement of “market determined exchange rate”.
Read more: Economic Gurus: Devaluation, IMF talks and Pakistan exports – Shehryar Aziz
“Fears of further devaluation as a result of the agreement with the IMF have depressed the currency market and the rupee may lose more against the greenback in the coming days,” Secretary General of Exchange Companies Association of Pakistan, Zafar Paracha told Dawn said Monday.
PM forms Body to Control Rupee Devaluation
Owing to the drop in rupee’s worth and its free fall reaching its record lowest in the open market on Wednesday, the Prime Minister Imran Khan constituted a committee, headed by Advisor to the PM on Finance, Dr Hafeez Shaikh to control devaluation of the local currency. The governor of the State Bank of Pakistan (SBP) is also a member of the said committee.
The committee has been tasked to ascertain whether the provision of carrying $10,000 by anyone who travels abroad from Pakistan can be slashed down to $3,000 as proposed by the Exchange Companies Association of Pakistan (ECAP), as it can save $2bn every year.
The economic gurus said that the dollar was available below Rs142 a week ago but started to fall in the wake of speculations that government had agreed to let the rupee depreciate.
In a meeting with the members of ECAP on Wednesday, various factors involved in capital flight and devaluation of the rupee against the dollar were discussed. ECAP president Malik Bostan, while giving proposal on how the government could control devaluation of the rupee said that here was no shortage of foreign exchange in Pakistan, but it required proper management.
“We informed the prime minister that during the last 23 years $160 billion was sent abroad from Pakistan while total foreign debts of the country stood at $100bn,” Dawn quoted him as saying. He pointed out that unchecked Afghan transit trade was responsible for the problem and $2bn could be injected into the local economy by taking action in this regard.
SBP governor, chairman of the Federal Board of Revenue and director general of the Federal Investigation Agency also attended the meeting. Following the meeting, the exchange companies had issued new exchange rates and the dollar rate was slashed by Rs2 to sell at Rs144. However, the dollar jumped to Rs148 on Thursday.
Read more: Rupee Devaluation: Was the State Bank’s Independent policy the cause?
The economic gurus said that the dollar was available below Rs142 a week ago but started to fall in the wake of speculations that government had agreed to let the rupee depreciate by 20 percent or up to Rs165-170 to the greenback as part of the recently IMF loan program.
Fall in Rupee Hits Common Man’s Pocket
The fall in rupee hits the common man where it hurts the most – his pocket. From grocery bills to entertainment and from foreign education to jobs and remuneration, the appreciation of dollar, directly and indirectly, hurt the masses as their buying power is reduced because of inflation. With the rupee weakening, the burden increases because of the skyrocketing prices of pulses to oil and from buying a car to a measly gadget.
Because of the import of several items, the rupee depreciation impacts different sectors. For example, every industry which depends on imports will have to face an increase in cost of production and operations, and in order to nullify the increase, the companies will go for either lesser number of people or keep the salaries constant or reduced.
In rural areas, 33 percent said inflation, 20 percent said unemployment, 15 percent said corruption, 5 percent said poverty, 5 percent said energy crisis (electricity and gas), 9 percent said none and 7 percent said others.
As a result of dollar’s rise, buying your favorite pizza and the latest laptop becomes more expensive. Holiday plans, computers, televisions, mobile phones etc. with imported components also become costlier.
33% Pakistanis Believe Inflation is the Most Pressing Issue Facing Country
According to a survey carried out by Gallup & Gilani Pakistan, one in three Pakistanis (33 percent) believe inflation is the most pressing issue facing the country at the moment.
http://gallup.com.pk/wp-content/uploads/2019/05/15-May-2019-English-1.pdf
A nationally representative sample of men and women from across the four provinces was asked, “What, in your opinion, is the most pressing issue Pakistan is facing right now?” In response, 33 percent said inflation, 19 percent said unemployment, 14 percent said corruption, 6 percent said poverty, 5 percent said energy crisis (electricity and gas), 7 percent said none, and 8 percent said others. Eight percent did not know or wish to respond.
In urban areas, 34 percent respondents said inflation, 17 percent said unemployment, 12 percent said corruption, 6 percent said poverty, 5 percent said energy crisis (electricity and gas), 13 percent said others and 2 percent said none. 11 percent did not know or wish to respond.
Read more: Why Pakistan’s exports are not growing? – Dr Kamal Monnoo
In rural areas, 33 percent said inflation, 20 percent said unemployment, 15 percent said corruption, 5 percent said poverty, 5 percent said energy crisis (electricity and gas), 9 percent said none and 7 percent said others. 6 percent did not know or wish to respond.