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Pakistani Rupee Slumps, Currency Devalues Greatly Against USD

By Michelle Jones. Originally published at ValueWalk.

The Pakistani rupee (PKR) slumped by more than 3% versus the U.S. dollar on Wednesday, falling to its lowest level in more than three years. Analysts at several firms say the nation’s central bank is responsible for the devaluation, while Pakistani Finance Minister Ishaq Dar called the drop “artificial.”

Pakistani Rupee PKR vs USD
Image: Sheeraz Raza/ ValueWalk

State Bank said to devalue Pakistani rupee (PKR)

The Pakistani rupee (PKR) has been relatively stable against the U.S. dollar for a long time, so when it tumbled suddenly without any warning, analysts began to speculate that the State Bank of Pakistan was behind the drop. According to Reuters, Citibank analysts said Pakistan’s FX reserves had fallen by approximately $4 billion after peaking at $24.5 billion in October due to continuing external challenges.

Other firms also argued that the State Bank was behind the sudden decline in the Pakistani rupee (PKR). But the sudden decline is not the only reason analysts suspect that the nations’ central bank purposely allowed a devaluation.

According to Bloomberg, last year the International Monetary Fund stated that the Pakistani rupee (PKR) was overvalued and that it was hurting the nation’s exports. IMF pegged the overvaluation at as high as 20%. The currency follows a managed float regime. Last month, Commerce Minister Khurram Dastgir Khan also said he was attempting to convince Dar that they should devalue the currency due to the weakening of other nations’ currencies. He had argued that Turkey, China, Thailand and other nations whose currencies had weakened had an advantage over Pakistan.

Dar calls the Pakistani rupee’s (PKR) tumble “artificial”

In a statement, Pakistani Finance Minister Ishaq Dar expressed “deep concern, indignation and disappointment” at the PKR’s weakening. He didn’t say who he thought caused the sudden decline, although he said he felt that “the current political situation is being exploited by certain individuals, banks and entities.” He also owed to identify “the responsible persons and entities” and that “appropriate action will be taken against them in the national interest.”

Bloomberg connected the dots between Dar’s statement and the current allegations of corruption against Pakistani Prime Minister Nawaz Sharif and some of his family members.

State Bank expresses opposing stance on the PKR’s decline

The State Bank of Pakistan issued its own statement on the decline of the Pakistani rupee (PKR). The central bank said that the weakening will improve Pakistan’s prospects for growth and that it lines up with their economic fundamentals. It also said that the weakening will essentially level the playing field between Pakistan and some other countries.

BMA Capital research head Fawad Khan told Bloomberg in a phone interview that the State Bank “did the devaluation by allowing some import payments to be made through the interbank system.”

It’s expected that the weaker Pakistani rupee (PKR) will enable the country to lift exports, which have been on the decline, thus curbing the growing deficit. The apparent devaluation comes as Sharif prepares for next year’s national elections.

The post Pakistani Rupee Slumps, Currency Devalues Greatly Against USD appeared first on ValueWalk.

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