Pakistani rupee nosedives against dollar amid IMF deal impasse
The greenback being traded at Rs285 in the interbank market
LAHORE (Dunya News) - The US dollar spiralled out of control as the Pakistani rupee depreciated Rs17.89 against the greenback during intra-day trade on Thursday amid political and economic uncertainty.
The greenback was being traded at Rs284 in the interbank market as the trading session is still on. The historic plunge in the value of the local currency followed the monetary policy review and delay in the International Monetary Fund (IMF)'s deal.
The dollar also rose Rs 9 in the open market.
According to Arif Habib Limited, the appreciation in the interbank market continues after the government curbed imports to manage the depleting foreign exchange reserves amid a high risk of default.
The development comes as the market expects further monetary tightening to control inflation at the State Bank of Pakistan's emergency Monetary Policy Committee (MPC) meeting is scheduled for later on in the day. The local currency had fallen against the greenback on Wednesday, settling at 266.11 after a depreciation of 1.73 per cent or Rs4.61 in the inter-bank market.
Exchange Companies Association of Pakistan (ECAP) secretary general Zafar Paracha was of the view that the IMF had asked Pakistan to trade the greenback at the current Afghan trade rate.
He said in other words, the IMF had said Pakistan's actual rate should be as in the grey market rate, not the interbank rate or the open market.
"They [IMF) are right as the availability and trade of dollars taking place right now is only in the grey market,” Paracaha added.
-- Moody's downgrades Pakistan's credit rating to 'Caa3' --
On Tuesday last, Moody's downgraded Pakistan’s local and foreign currency issue and senior unsecured debt ratings to Caa3 from Caa1.
The decision to downgrade the ratings is driven by Moody’s assessment that Pakistan’s increasingly fragile liquidity and external position significantly raises default risks to a level consistent with a Caa3 rating, said a statement.
In particular, the country's foreign exchange reserves have fallen to extremely low levels, far lower than necessary to cover its imports needs and external debt obligations over the immediate and medium term.
Moody's added that it has also downgraded the rating for the senior unsecured MTN programme to (P)Caa3 from (P)Caa1. The agency further noted that it has changed the country's outlook to "stable from negative".
-- IMF places four new conditions --
Sources further said the IMF has changed interpretations of at least four prior actions ahead of reaching a staff-level agreement (SLA) on the direly needed economic bailout.
The latest IMF move has annoyed Pakistani authorities who said we [Pakistan] were members of the IMF, not beggars or else our membership be discarded.
The global lender has placed four prior actions i.e. imposition of permanent power surcharge of Rs3.39 per unit plus 0.43 paisa (total Rs3.82 per unit), market-based exchange rate, hiking discount rate by 150 to 250 basis points and securing confirmation from bilateral partners to meet external financing gap of $7 billion.
Officials likened the situation to that in 1998, when Pakistan’s economic difficulties worsened in the wake of nuclear tests.