Home Editorial Rupee declining drastically

Rupee declining drastically

4299
0

On Friday, the rupee was at Rs150 in the open market. It was going to stop or not, it is hard to say. Now it appears that the government had agreed to the devaluation in the IMF deal. On Wednesday, a deputation of the Exchange Companies Deputation has gone to PM Imran Khan to halt the slip of the rupee. It looked like the crash stopped but again it slipped again on Thursday. The drop on Thursday was substantial from Rs141 to Rs148. No one can say that the depreciation could be managed well. Every official seems to be running around without any way in the right direction. The government needs to show its strength and trust in the long-term of such moves. To most onlookers, it is evident the SBP was solely behind the devaluation of the rupee this week as part of fulfilling the before requirements of the IMF deal. The SBP satisfied itself that this movement takes into account supply and demand conditions in the foreign exchange market and it will assist in redressing discrepancies. Within two days the rupee has lost approximately five percent of its value, causing increasing worries across the business community, with the financial sector on the forefront.
Since assurances plunged Adviser to the Prime Minister on Finance Dr Hafeez Shaikh flew into Karachi on Thursday and met stockbrokers on Friday at the Sindh Club and listened to their complaints for an hour and a half. Stock market ended bleak week in 17 years; rupee hits 151 in open market; brokers met SBP Governor. Remembrance of 2008 were reinvigorating when the brokers requested the finance adviser to set up a “market support fund” to help rein in the continuous decline being seen on the trade floor. After the meeting, some brokers told their media contacts that the adviser had accepted to the idea of generating the fund, and even went so far as to say that about Rs20 billion would be given to the National Investment Trust for the objective. This request was entirely theoretical. A press release issued by the stock exchange later in the evening said only that it was also recommended that keeping in view the charming valuations at the PSX a market support fund may be examined. Following the meeting, the gathered delegates, along with the finance adviser, went to the State Bank to meet new Governor Dr Reza Baqir. No formal announcement of that meeting was made, but origin in the brokers’ community as well as at the State Bank affirmed that a meeting took place on the requirement that the contents of the conversation between the parties would not be exchanged with any outsiders. A small number of brokers who were present at the State Bank would only say that functioning of the proposed “market support fund” as well as forthcoming direction of the exchange rate and announcement on interest rates came under discussion. The local currency has been getting lost its value against the dollar since the government stated talks with the International Monetary Fund for a bailout package. Currency professionals and dealers think that this devaluation is part and parcel of a feasible IMF agreement shortly for a $6 billion package. This devaluation and regular reports about further devaluation have broken the trust of the market and declined the value of assets. Pakistan’s industry, for example auto, cement and pharmaceutical import raw material would take an immense smash as they would have to pass on the further cost to their customers. Accelerating costs in each of these industries are set to strike the economy and the common man alike. Few debated that the devaluations may well be essential, but they should be done in one go rather than being prolonged. The rupee, which vanished 3.6 percent on Thursday to close at 146.2 against the US dollar in the interbank market, dropped further on Friday, dealers said, selling at Rs149.50 in the interbank market and Rs150 in the open market.
The fall depicts the IMF’s condition for a market-based exchange rate device which will see limited interference by the central bank now. According to SBP the accelerating fall in the rupee shows demand and supply conditions in the foreign exchange market and would assist in redressing market inequities. Since the economy countering a substantial slowdown in growth, the government is anticipated to have to increase taxes or impose heavy spending cuts to reduce its huge budget deficit at a time when house budgets are more and more pinched. In the many examiner see the rupee as overvalued and say the SBP has squandered huge amount protecting it, a weaker currency is likely to raise inflation, which is already above 8 percent, with power and fuel prices struck particularly strong. The larger stockbrokers at the meeting was also have asserted their worries to the Governor SBP on the devaluation of the rupee and further tightening of the monetary policy, which could impact the profitability of listed companies.
The government has decided to introduce as far as Rs 20 billion fund to provide liquidity with a view to backing the Pakistan Stock Market which is under severe stress due to currency devaluation and other problems. Advisor to the Prime Minister on Finance Dr Abdul Hafeez Shaikh accepted this proposal during a meeting with stock brokers who met him here on Friday. The proposed fund will be administered by NIT with the support of State Life Insurance Corporation, some banks and financial institutions. The proposal of this fund was proposed by a delegation of eminent stock brokers who had a meeting with the Advisor to the Prime Minister on Friday.