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Pakistan: Rupee is Close to Becoming the Month’s Biggest Loser in the World, Some Fear that it May Reach Rs200 for a Dollar by Year-End

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Feeling anxious and depressed over devaluation? Well! Things are getting worse with no sign of improvement, as Bloomberg said in a latest report that “Pakistan’s rupee is vying for the title of the world’s biggest loser this month, the victim of an apparent devaluation with more pain ahead”.

Talking about the link between the devaluation and the deal reached with the International Monetary Fund (IMF), it said the managed-float currency dropped more than 5 per cent in May and breached 150 per dollar, after the government agreed to another bailout by the IMF that recommended a market-determined exchange rate. The central bank had devalued the currency five times last year.

The IMF has long advocated Pakistan to loosen its grip on the rupee, and estimated the real exchange rate was overvalued by as much as 20 per cent in 2017.

“This knee-jerk reaction of the market will continue,” said Kaiser Bengali, an economist. “Given our large deficit and high debt ratio, the rupee will continue to decline. The rupee will be 200 a dollar by year-end.”

Pakistani rupee is among the worst performers globally in May after latest weakness.

Pakistan’s economy is going through a familiar boom-and-bust cycle; debt is soaring, inflation is rocketing, and reserves are falling after a deficit blowout.

According to Bloomberg, the central bank (SBP) did not immediately respond to a request for a comment on the rupee’s performance. Earlier this month, it said the rupee level reflects demand and supply conditions in the foreign-exchange market, and that it will help in correcting market imbalances.

The rupee closed at 149.64 per dollar on Wednesday, according to the central bank. It touched a record-low 152.525 last week, according to data compiled by Bloomberg, and is among the worst performers globally in May together with currencies from Zambia and Haiti. The rupee has now erased almost a third of its value in the past 12 months.

The central bank still intervenes but the currency is now more determined by market forces, according to three foreign-exchange dealers who requested not to be named since they are not allowed to speak publicly.

Uzair Younus, South Asia director at Washington-based consultancy Albright Stonebridge Group LLC, said, “It seems that the rupee’s value is still being managed, but the State Bank of Pakistan is not allowing imbalances to build up. The decision has been made to not allow the currency to remain overvalued for a long period of time.”

“I expect the central bank to be measured in its approach and intervene only when it’s absolutely necessary. The pressure on the rupee will continue and the central bank will allow it to depreciate further in the coming weeks.”

But Ahmed Ateeq, head of treasury at Pak Brunei Investment Co. in Karachi, says the dollar/rupee is at a realistic level for the first time in two years

“We are close to real effective exchange rate” that is a benchmark used by the IMF. The rupee will hover around 150 for now but we may see a 5 per cent-6 per cent drop by year-end that is normal for a nation like Pakistan.”

According to Shahid Ali Habib, chief executive officer at Arif Habib Ltd in Karachi, rupee is “very much fairly valued” so it is unlikely to see further devaluation.

“The currency will be more market driven, so there may be a bit more volatility on demand and supply though it will stay near this level,” he added.

“When you go into IMF program, the central bank does not deploy its reserves to manage the currency. They will intervene to stop any speculation,” he said.

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