• Tuesday, April 24, 2018

Pakistan Rupee sinks on concerns over balance of payments

Discussion in 'Pakistan Economy' started by Laozi, Mar 20, 2018.

  1. Laozi

    Laozi SENIOR MEMBER

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    Rupee sinks on concerns over balance of payments

    KARACHI: The Pakistani Rupee fell five percent in the interbank foreign exchange market on Tuesday after international payments and falling reserves prompted a negative trend in the currency.

    It was the first time since December 2017 when the currency fell. Economists have suggested that the rupee’s depreciation would help correct the balance of payment problem, although it would erode the purchasing power of the general public.

    The rupee’s fall from 110.57 a dollar in the interbank foreign exchange market yesterday to 115 at the close of business has left the market unsettled. The 4.51 percent fall in a single day is the highest recorded depreciation in the currency’s value since 2008.

    The rupee has lost almost 10 percent of its value in the present fiscal year.

    The surge in dollar’s value has been attributed to Pakistan’s reliance on imported goods. The country’s trade deficit has stood at almost 20 billion dollars in the past eight months, according to statistics issued by the State Bank of Pakistan (SBP). Pakistan’s imports amount up to 35 billion dollars while the exports stand at a meagre 16 billion dollars, leaving a huge gap between the payments received and made.

    Topline Securities’ analyst Mohammad Sohail believes the weakness in rupee will help correct the imbalance between the imports and exports by pushing up the country’s exports. The weakness would pent-up prices which would pinch general public but also help in addressing the current payment crisis.

    But not everybody is buying this notion. Muzzamil Aslam of EFG Hermes Pakistan understands that the rupee devaluation might not curtail imports. Pakistan is expected to grow by six percent this year and since most of the country’s growth is consumption based, people would pay more for consumption and so, imports would continue to follow despite the expensive dollar.

    Rehan Atiq of Shajar Capital told Geo News that a market based free-floating rate can cure the situation. The measure would initially increase volatility but eventually settle down as a market-based exchange rate would improve investments inflow, said Atiq.

    The central bank has attributed the rupee’s depreciation, which it says it is closely monitoring, to the market forces. A similar statement was released by the SBP last year in December. Some foreign exchange traders believe that further pressure will be created in the market if the current situation persists.

    The central bank can either opt for letting the rupee depreciate on a day-to-day basis and let the market adjust to changes or keep the parity frozen for a bigger future adjustment. Many advocate that the first option is more preferable.


    https://www.geo.tv/latest/187281-rupee-sinks-on-concerns-over-balance-of-payments
     
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  2. HAIDER

    HAIDER ELITE MEMBER

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    Great gift of our Minister of Finance .
    [​IMG]
    His son in Dubai
    [​IMG]
    [​IMG]
    upload_2018-3-20_13-28-51.jpeg
     
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  3. Mugen

    Mugen FULL MEMBER

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    Another snake who should be hanged for betraying the country. Justice is too soft on these traitors.
     
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  4. Spring Onion

    Spring Onion PDF VETERAN

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    We sold many entities due to which flow of dollar is outward . It seems rupee will devalue further
     
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  5. Cookie Monster

    Cookie Monster FULL MEMBER

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    On one hand this depreciation should help reduce imports and promote exports...on the other hand it causes ever more "mehngai" for the poor ppl :(
     
  6. Solomon2

    Solomon2 ELITE MEMBER

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    MARCH 20, 2018 / 2:15 AM / UPDATED 8 HOURS AGO
    Pakistani rupee weakens sharply in likely devaluation by central bank

    Drazen Jorgic, Syed Raza Hassan


    ISLAMABAD/KARACHI (Reuters) - Pakistan’s rupee weakened sharply against the dollar on Tuesday in what appeared to be a currency devaluation by the central bank, traders said, the second such intervention in less than four months.

    [​IMG]

    A currency trader counts Pakistani Rupee notes as he prepares an exchange of U.S dollars in Islamabad, Pakistan December 11, 2017. REUTERS/Caren Firouz

    The apparent devaluation comes at a time when Pakistan’s nearly $300 billion economy is showing signs of vulnerability despite surging growth rates.

    The rupee PKR= plunged to about 115.5 per dollar in early trading from 110.5 at Monday's close, traders said.


    Abid Qamar, spokesman for the State Bank of Pakistan (SBP), told Reuters the rupee plunge was a “market driven” event.

    However, foreign exchange traders say the central bank’s withdrawal of support for the rupee in daily market operations on Tuesday sent the currency lower.

    The SBP devalued the local currency in a similar manner by about 5 percent in December amid balance of payment pressures due to a widening current account deficit and dwindling foreign reserves. The market was broadly expecting another devaluation this year.


    “Apparently the central bank withdrew support,” Fawad Khan, head of research at BMA Capital, told Reuters on Tuesday.

    Withdrawal of support would have the effect of devaluing the currency as the SBP is the most influential player in the thinly-traded local foreign exchange market and controls what is widely considered a managed float system.

    In response to Reuters’ queries about the rupee’s decline on Tuesday, the central bank’s Qamar said it was triggered by “some payment pressures which are building within the market” and added that the central bank would be “observing the market where it is moving towards.”

    A sharp drop in militant attacks and vast infrastructure investments by China have propelled Pakistan’s economic growth to above 5 percent, the fastest pace in a decade.

    But a surge in imports, in part driven by purchases of machinery for the Chinese Belt and Road projects, has widened Pakistan’s current account deficit and prompted analysts to suggest the country may need an International Monetary Fund (IMF) bailout in the coming 12 months.

    The IMF, which last provided a bailout package to Pakistan in 2013, earlier this month said the Pakistan’s short term outlook was “broadly favorable” while also warning that “continued erosion of macroeconomic resilience could put this outlook at risk”.


    LOOMING ELECTIONS
    Analysts have warned for some time that the currency remains overvalued.

    “We believe this is much needed as Pakistan’s external account has deteriorated as of late,” the Topline Securities brokerage said in a flash note to clients on Tuesday morning after the rupee weakened.


    With a general election due in less than six months, analysts say the government will be reluctant to pursue many of the unpopular or politically-damaging measures such as turning to the IMF again, or loosening the currency peg that could further weaken the rupee and usher in higher inflation.

    Miftah Ismail, Pakistan’s de facto finance minister, last month told Reuters that his country will not need another bailout as exports are increasing and foreign reserves are being well managed.

    Capital Economic, a macroeconomic research consultancy, said it expects the government to keep running down its foreign reserves until after the election in order to keep the rupee pegged.

    “Once the election is out of the way, however, more drastic action is likely,” Capital Economics said in a research note.


    Reporting by Syed Raza Hassan and Drazen Jorgic; Writing by Drazen Jorgic; Editing by Sam Holmes, Joseph Radford and Kim Coghill
     
  7. Spring Onion

    Spring Onion PDF VETERAN

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    The experts disagree with even any possible export increase. And not only inflation will rise but it is going to affect many sectors like import bills, reserves which are already in the negative besides even defence sector
     
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  8. SOUTHie

    SOUTHie SENIOR MEMBER

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    err! but your FM was reluctant to devalue rupee...
     
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  9. Cookie Monster

    Cookie Monster FULL MEMBER

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    As a currency depreciates, it weakens the purchasing power of that country...including its importers. So the general trend is a decline in imports.

    The opposite happens for foreign importers...their currency now stands stronger comparatively...and hence the general trend is that exports of the country whose money got depreciated, increase.

    Of course I could be wrong since I'm no expert and only going off of general trends. Could u perhaps shed more light on why the general trend wouldn't happen in this case?
     
  10. takeitwithyou

    takeitwithyou BANNED

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  11. HAIDER

    HAIDER ELITE MEMBER

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    Do you believe after all his corruption ??? . A person who fabricate number to get loan from IMF.
     
  12. Trisonics

    Trisonics FULL MEMBER

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    What effect will this have on current loan payments?
     
  13. SOUTHie

    SOUTHie SENIOR MEMBER

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    No, I'm not saying he is a good guy. I read the news a few months back that your FM was reluctant to devalue currency against the will of central bank governor. Why he did that I don't know.
     
  14. HAIDER

    HAIDER ELITE MEMBER

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    New taxes or increase in taxes or increase in price of patrol or VATs.

    Nawaz added whopping $35b to Pakistan’s debt
    https://tribune.com.pk/story/1469896/nawaz-added-whopping-35b-pakistans-debt/

    If he is unaware of this reality then should have fired from his job longtime ago.
    Seems he is employee of world bank or imf rather a Pak finance minister.
     
  15. Lil Mathew

    Lil Mathew BANNED

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    Burden of debt denominated in foreign currency will increase.
    If the loan is denominated in local currency, it become easier to pay off...