The Pak rupee is likely to depreciate to a record low of 90 rupees against US dollar by the end of this financial year, according to economic observers.
Current account deficit hits $1.5b
This depreciation, the analysts believe, would primarily be led by the fast deteriorating numbers in the country’s current accounts that, during first four months of FY12 (July-October), saw a deficit $1.5 billion compared to $541 million of the corresponding period last year. “The decline of rupee is imminent it would depreciate up to 90-rupee by the end of this (fiscal) year,” viewed the economist, Asfar Bin Shahid. Other economic observers second this opinion saying the Pakistani currency, which had remained stable against the greenback at Rs86 for last couple of years, was all set to shed some value by end-June. “We believe the rupee value could go down to 90 (rupees) by the end of June (FY2012),” said Mohammad Sohail, chief executive officer of Topline Securities. The analyst said rupee depreciation against the dollar, however, remained “controllable” by around 1.5 percent in FY12YTD despite signs of weakness in the current account numbers. The view seems to carry enough weight if analysed in the backdrop of ongoing trend on the local inter-bank market. Monday only saw the dollar surging to, what the market sources said, a record high of 88.04 against rupee. “Pakistani rupee hits record low of 88.04 to a dollar,” said a money dealer.
Import bill up by 2.3%
The latest fall is attributed to the “increased” import payments made by importers through the inter-bank market. According to State Bank data for July-Oct FY12, the import bill of the country accumulated to over $13.4 billion, up 23 per cent or $2.521 billion compared to $10.879 billion of the same period in FY11. This widened the country’s deficit-prone trade balance to $5.2 billion against $3.7 billion of the previous year. “Yes, the rupee devalued on Monday to 88 but there is no panic buying on the open market which is still stable and has no supply demand problem. Thus this (decline) is because of the inter-bank market,” said Malik Bostan, president Forex Association of Pakistan (FAP). The SBP chief spokesman Syed Wasimuddin confirmed that the rupee depreciation was on the back of import payments and that the inter-bank market had catered to the dollar need of the importers. Terming the predicted downfall of the rupee to the 90-rupee level as highly inflationary for a fragile economy, Bostan said open market was still doing well by surrendering 80 per cent of its surplus dollars to the inter bank market.
Inter-bank supply at $5-6m
“On average our daily surplus supply to the inter-bank market ranges from 5 to 6 million dollars,” the FAP chief told Profit. The remaining 20 per cent, the dealer said, was going to ordinary buyers. Instead, Bostan said, the inter-bank market was more volatile where the past one month had seen local currency dropping by at least 2 rupees against a dollar.
“I would propose a low interest rate regime by the central bank and that depreciation to 90-rupee level would prove highly inflationary for the ailing economy,” the senior currency dealer replied when asked to give his outlook on the future rupee-dollar parity. Economists like A.B Shahid are critical of the economic managers for their failure to arrest the flight of capital from the country. The analysts said the government should have incentivised the risk-averse investors, implement an across-the-board austerity plan and control its current expenditures that were eroding much of its budgetary borrowings from the central and scheduled banks.