Investors on the stocks market appeared the first to feel the heat as negative fallout of current record depreciation of the rupee has started unfolding.
“The hefty fluctuation in USD against PKR yesterday (Thursday) signals towards the possibility of the worst situation at the country’s macro-economic level,” warned InvestCap analyst Abdul Azeem.
With the central bank denying outright the reports that it had intervened by injecting $50-60 million on the open market, Friday saw the rupee trading at Rs 108 against the greenback in the open market. On inter-bank market the exchange rate was Rs 105.1266.
For Monday, Sept 30th, the State Bank has notified the inert-bank rate at Rs 105.7353.
While the analysts are foreseeing the rupee to further nosedive to the historic low of Rs 115 by the end of current fiscal year, there is no one in sight to rescue the rupee at least in near future.
“In the currently uncertain situation we continue to expect PKR to remain depressed during FY14. Therefore, we have revised upward our forecast of PKR with the likelihood of touching Rs115/USD by the year end,” said Azeem.
Zeeshan Afzal, an analyst at Topline Research, said present moment of the rupee, which deprecated by 5.2 percent in FY14 to date, had become another source of concern due to no major effort seen to control its volatility.
The State Bank claims to be indifferent in terms of pumping dollars into the volatile currency market.
“The statements of Governor and Deputy Governor are on record. The State Bank has not intervened in the rupee market in the face of dollar injection,” said Umar Siddique, SBP’s acting chief spokesman.
The banking regulator, the spokesman added, was at work on the regulatory front by holding meetings with different stakeholders, specially the money exchangers. Governor SBP Yasin Anwar is also believed to have been closely monitoring the market situation.
Some analysts blame the regulator of being one of the attributing factors for the historic fall of rupee. “Expectation of SBP buying for IMF repayments of $147 million on September 27 and $109 million on October 01,” is one of the causes Azeem cited for the rupee devaluation.
Senior analyst AB Shahid also opines that the SBP, through mop up operations, has continuously been intervening in the money market to buy dollars. “This factor is causing a steady slide in the exchange value of the rupee,” he told Pakistan Today.
The analysts believe that factors adding fuel to the fire and leading to “exceptional fluctuation” on the open market included increasing demand for dollar due to oil payments in the absence of SBP’s intervention, increasing demand from local importers due to fear of further rupee depreciation, inflow from exporters also on the lower side as they abstain from floating their dollars in the market awaiting further depreciation of PKR to improve their profits, delay in expected foreign inflow in the country, the demand of USD from intending Haj pilgrims and increased speculation activity.
Besides, the government also has to meet the IMF requirement for next tranche as it was to add further 4 347 million in the country’s foreign exchange reserves by the end of December 2013.
The investors at the Karachi stock market reacted sharply to the uncertainty hovering over the ailing economy.
The benchmark 100-share index fell 393.5 points to close at 22,387.31 points. The market lost Rs 63 billion on the day as the market capital contracted to Rs 5.294 trillion from Rs 5.357 trillion on Thursday.
“Stocks fell across the board on economic uncertainty after rupee free fall against dollar amid fears for surge in CPI Inflation in the country,” said Ahsen Mehanti, senior equity analyst.
The day’s trading turnover shrank to 163 million shares compared to the previous 193 million. The value of the shares traded decreased to Rs 5.633 billion from Rs 7.11 billion.
He said 50bps revision in minimum bank deposit rates, major fall in global commodities and rising circular debt in energy sector were other factors to impact the sentiments despite institutional support ahead of quarter end close.
“The uncertainty in the local currency is expected to depress the foreigners’ interest in the local equity market as their return can be hurt by this situation,” viewed Azeem of InvestCap.
However, the rupee depreciation was expected to bode well for the textile, telecom, power generation and exploration sectors, the analyst said.
For the rupee to gain valuel, the analysts propose immediate steps to raise dollars through conducting 3G license auction expected to add USD1.2 billion, receiving from Etisalat $ 800mn, eliminate forward booking for exporters, 1st $362mn CSF installment from the US, curbing illegal flight of USD from the country, strict documentation of dollar on KERB market, materialization of loans from donor agencies, privatization of state-owned companies and fast track work on of LNG import to curb expensive oil import.