The Pakistani rupee dropped sharply in early trade on Monday in what appeared to be another devaluation by the central bank, two market analysts said, the fourth such intervention since early December. The currency was trading at around 125/126 per dollar at 10.30 am local time (0530 GMT) after closing at 121.5 per dollar on Friday.
“It looks like the central bank was prepared to do this and this rate is here to stay for now,” said one of the analysts, who spoke on condition of anonymity. When contacted by Reuters, a central bank spokesman attributed the rupee’s decline to market forces.
“Market forces are driving the exchange rate,” Abid Qamar, the central bank spokesman, told Reuters via text message. The State Bank of Pakistan (SBP) usually makes an announcement about devaluations a few hours after they take place.
Pakistan’s economic fundamentals have deteriorated ahead of the country’s July 25 general election, with most financial analysts expecting the next government will need to seek a post-election bailout from the International Monetary Fund (IMF).
Pakistan’s current account balance has been widening sharply, while foreign currency reserves have plummeted over the past few year. The central bank last devalued the rupee by about 4 percent in June, after weakening the currency by about 10 percent during interventions in March and December.
Traders say the SBP devalues the currency by withdrawing support in the rupee market. This has the effect of weakening 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.