ISLAMABAD: Pakistan´s rupee weakened sharply against the dollar on Tuesday in what appeared to be a currency devaluation by the central bank, traders said, the second such intervention in the last three months.
The rupee plunged to about 115.5 per dollar in early trading from 110.5 at Monday´s close, traders said. Abid Qamar, spokesman for the State Bank of Pakistan (SBP), told Reuters the rupee plunge was a "market driven" event.
However, foreign exchange traders say the central bank´s withdrawal of support for the rupee in daily market operations on Tuesday sent the currency lower.
The SBP devalued the local currency in a similar manner by about 5 percent in December amid balance of payments pressures due to a widening current account deficit and dwindling foreign reserves. The market was broadly expecting another devaluation this year.
"Apparently the central bank withdrew support," Fawad Khan, head of research at BMA Capital, told Reuters on Tuesday.
Withdrawal of support would have the effect of devaluing the currency as the SBP is the most influential player in the thinly-traded local foreign exchange market and controls what is widely considered a managed float system.
In response to Reuters´ queries about the rupee´s decline on Tuesday, the central bank´s Qamar said it was triggered by "some payment pressures which are building within the market" and added that the central bank would be "observing the market where it is moving towards.”
"Pakistan´s economy has been growing at above 5 percent, the fastest pace in a decade, but a surge in imports has widened its current account deficit and prompted analysts to suggest the country may need an International Monetary Fund (IMF) bailout in the coming 12 months.
"We believe this is much needed as Pakistan´s external account has deteriorated as of late," the Topline Securities brokerage said in a flash note to clients on Tuesday morning after the rupee weakened.
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