Rupee falls to record low in August

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The politically motivated violence and the ensuing uncertain security situation in the metropolis took a heavier toll on the local currency during Ramadan; that touched record lows in the month of August this year.
According to dealers at the money market, a constant deterioration in the law and order situation during the holy month had adversely impacted the rupee against the dollar. The value of the greenback, they said, had increased by at least 78 paisas against the otherwise stable rupee during the month of August that saw greater volatility. A poor law and order situation led to the flight of foreign investment to the tune of approximately $50 million during last month that, the dealers said, weakened the rupee. “On August 1st the inter-bank buying rate for a dollar was 86.52 rupees against 87.30 rupees of today (September 5),” a dealer, giving a comparative analysis, told Profit. “The selling rates for a dollar on the said comparative days were 86.57 and 87.35 rupees,” he said.
This slump in the value of rupee came despite Pakistan’s ballooning foreign exchange reserves that, according to the State Bank of Pakistan’s (SBP) calculation, aggregated to $17.898 billion during the week which ended on 27th August. “The rupee shed some value during the last month due to the flight of $50 million from Pakistan as the ever-increasing incidents of target killings, extortion, corruption and kidnapping for ransom have shaken the investors’ confidence,” said Malik Bostan, chairman Exchange Companies Association of Pakistan (ECAP). Other reasons the ECAP chief said were the suspension of foreign financing under the International Monetary Fund’s (IMF) Stand-By Agreement, the United State’s Coalition Support Fund, the commencement of payback to the IMF from 2012 and the recent floods that were devastating the country’s agrarian economy, specially in Sindh province. “This calamity would badly affect the country’s livestock sector and Pakistan being a major exporter of meat would feel the brunt on the balance of trade front,” Bostan exclaimed expressing his concern.
To a question on damaging impact of violence on the currency market, the money exchanger said that the August 28th explosive press conference of the former senior home minister, Dr Zulfiqar Mirza, and the following suo motu action of the Supreme Court was a sort of blessing in disguise for the money market. “The impact is positive as ever since Dr Mirza has given the statement, there has been no target killing in the city,” Bostan said. The dealer said the money market was cautiously and hopefully looking at the apex court’s decision on the restoration of peace in Karachi. “We are having a wait and see approach to see whether or not the government and judiciary take serious action,” the ECAP chief said. The money dealer stressed the need for setting up a Task Force on Union Council level to have feedback of the affectees of the extortion and violence. “On this Eid season, incidents of violence cost trade and commerce around Rs60 to Rs70 billion,” he said. “Peace is a prerequisite for ensuring an investment-friendly climate and economic development in a country,” the dealer said.