Record low Pakistani rupee depreciation

Pakistan currency weakens further to Rs121 against dollar in intra-day trading.
The Pakistani currency weakened by 3.65 percent and closed at a record low of Rs119.84 to the US dollar in the inter-bank market on Monday, according to the State Bank of Pakistan (SBP).
On the previous working day on Thursday, the rupee had stood at Rs115.61 in inter-bank trade where commercial banks usually buy and sell large volumes of foreign currencies, mostly US dollars, on behalf of commercial importers.
In a statement, the central bank explained that the downward adjustment in the rupee depicted mounting pressure on the country’s foreign currency reserves, which had gone down to a critical level of around two months of import cover at $10.04 billion on June 1, 2018.
The country’s external balance of payments position is under pressure due to a large trade deficit.
Despite a 13.3 percent increase in exports in the first 10 months of current fiscal year (July-April fiscal year 2018) and expansion in workers’ remittances the growing imports have pushed the current account deficit to $14 billion in first 10 months of fiscal year 2018, which is 1.5 times the level of deficit recorded in the same period of last year.
Before closing at the historic low, the rupee dropped to an all-time intra-day low of Rs121.50 to the US dollar.
Rupee weakens to over Rs119 against dollar in open market as panic buying continues
The SBP will continue to closely monitor foreign exchange markets and stands ready to ensure stability in financial markets and stop the emergence of speculative pressures.
In the past, the central bank has played a key role in determining the rupee-dollar exchange rate as it usually intervenes to keep the local currency stable.
The depreciation comes in stark contrast with an earlier statement of SBP Governor Tariq Bajwa who said the rupee was trading near its true equilibrium.
Former finance minister Miftah Ismail had also ruled out the possibility of rupee depreciation after exports started increasing.
This was the third round of rupee depreciation since December 2017.
In the first two rounds, it had shed 9.5 percent (5 percent in December 2017 and 4.5 percent in March 2018).
Cement stocks took a big hit as all companies closed in the red.
Automobile and pharmaceutical stocks also plunged with majority of the names going down.
On the other hand, banks and exploration and production stocks surged and performed well.
At close, the benchmark KSE 100-share Index recorded a decrease of 16.95 points or 0.04 percent to settle at 43,931.16.
The market opened with news of a third round of rupee depreciation in the inter-bank market as the currency crossed Rs121.5 against the US dollar.
Export-oriented sectors such as textile (+1.3 percent) and sectors that had dollar-linked revenues such as exploration and production (+1.1 percent) and power (+1.5 percent) came in the limelight and traded higher.
Financial stocks (+0.7 percent) too maintained their upward momentum on expectations of a more aggressive increase in interest rates going forward.
On the flip side, cement stocks (-3.2 percent), steel (-4.9 percent) and auto (-1.4 percent) succumbed to profit-taking as a sharp rupee depreciation hurt demand, increased potential exchange losses and/or costs for these sectors.
Engro Corp (+2.3 percent) weathered the storm as investors cheered the company’s announcement at the weekend on unearthing the first layer of coal from Thar block-II.
The project comes under Sindh Engro Coal Mining Company and is currently three to six months ahead of schedule.
Shares of 341 companies were traded. At the end of the day, 106 stocks closed higher, 214 declined while 21 remained unchanged.
The Bank of Punjab was the volume leader with 24.7 million shares, gaining Rs0.2 to close at Rs13.24.
It was followed by Lotte Chemical with 14.1 million shares, gaining Rs0.62 to close at Rs12.22 and Pak Elektron with 9.5 million shares, losing Rs1.96 to close at Rs37.82.
Foreign institutional investors were net sellers of Rs163.6 million worth of shares during the trading session, according to data compiled by the National Clearing Company of Pakistan.
Rupee loses ground in open market, SBP calls ’emergency’ meeting.
In May 2018, Moody’s Investors Service one of the top three global credit rating agencies forecast that Pakistan’s rupee could shed value by another 7.75 percent and its worth may go as low as Rs125 to the dollar by June next year.
Besides, the International Monetary Fund (IMF) and independent experts have also found the rupee’s equilibrium near Rs125 to the US dollar.
The another surprise depreciation of the exchange rate jerked markets on Monday, with its effects lasting through the next day as the stock market came under heavy selling pressure.
The government continued to the hope that the Chinese investments that entered the country during its tenure would somehow breathe new strength into the external account.
The incoming government will inherit another bankrupt treasury, depleted reserves, and it will repeat the same that we inherit crumbling economy.
The Caretaker Finance Minister has wisely refrained from making any statements on the matter
Miftah Ismail, the Finance Minister in the Abbasi-led administration, who went on record in March stating that the rupee, would stabilize at around 115 rupee to the dollar – a rate that would be sustained till December 2018.
It is to be seen whether the cumulative depreciation is able to check the growing trade deficit as well as to get rid of the fast depleting foreign exchange reserves.
To bring about stability in the economy and the caretakers would need to take emergency measures to check all unnecessary imports.
There is a real danger that the caretaker administration headed by Prime Minister Nasirul Mulk might be encouraged to go to the International Monetary Fund (IMF) for a loan rather than wait for the next elected government to make that decision.
The present situation is indeed necessary in the wake of dwindling foreign reserves and the widening current account deficit.
Some urgent measures ought to have been taken by the interim government by effectively curbing imports and increasing exports at the same time.
In the long run currency depreciation cannot be used as for overcoming our country’s balance-of-payment crisis.
In order to get rid of these troubles Pakistan needs a mixed number of measures.
Already foreign reserves stand at a low of two months’ worth of imports.
If the caretakers really want to get a way out of the crisis, they should take steps to lower the fiscal deficit and bring down imports.

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