Pakistani rupee hits record low, crosses 73 per dollar
KARACHI: The Pakistani rupee was 2.9 percent weaker at a record low of 73.04 to the dollar on Tuesday because of worries about inflation, widening budget and current account deficits and security, dealers said. The rupee had closed at 71.00/05 on Monday.
The currency is also under pressure from a rise in demand for dollars from importers, particularly for oil payments. “The whole macroeconomic picture is very bleak, with inflation at a three-decade high, widening twin deficits and depleting reserves,” one currency dealer said. Dealers said that recent bombings, including a weekend suicide attack in the capital and six small blasts in Karachi on Monday, compounded the worries.
The rupee is now well below levels seen in late May, when a precipitous fall prompted the central bank to take steps, including raising the discount rate to 12 percent from 10.5 percent, to stabilise the currency and dampen speculation.
The rupee has fallen over 18 percent against the dollar this year as annual inflation accelerated to a three-decade high of 19.27 percent in May and fiscal and current account deficits have widened.
Traders said intervention by the central bank, which closely shepherds the exchange rate, would stabilise the rupee in the short run but the State Bank’s reserves were running low because of the weight of demand for dollars from importers.
According to official figures, $1.42 billion in foreign reserves was used to cover the oil import bill in May. The monthly average between February and May was $1.27 billion. With rising oil prices, the import bill was expected to increase and, with foreign reserves of $11.3 billion, analysts said the outlook was bleak.
They said reserves were sufficient to cover imports for nearly three months but, according to one widely used benchmark, a country should have enough cover for six months. Traders said the central bank would probably have to raise interest rates in a policy review later this month to try to bring prices under control. In a presentation to President Pervez Musharraf on Saturday, the governor of the State Bank said rising international fuel and commodity prices had considerably increased the pressure on the balance of payments, fiscal accounts and inflation.
In what analysts said could be a hint of further tightening, Governor Shamshad Akhtar said a number of developing and developed countries were pursuing tight monetary policies to contain inflation and to mitigate its impact on long-term growth.
Analysts fear political infighting is distracting government attention from restoring economic stability, although the budget announced last month set targets to bring down an unsustainable fiscal deficit, and the government is seeking loans from friendly governments and multilateral lenders. reuters
Daily Times - Leading News Resource of Pakistan