Pakistan Devalues Its Currency for Third Time Since December
(Bloomberg) -- Pakistan’s central bank devalued the rupee for a third time since December amid a worsening economy and speculation the country will need support from the International Monetary Fund.
The managed currency dropped 3.7 percent to close at 119.84 per dollar on Monday, State Bank of Pakistan said in emailed statement. The rupee is Asia’s worst-performing currency this year, data compiled by Bloomberg show.
The devaluation comes amid a global emerging-market selloff that has convinced Turkey, Indonesia and India to raise interest rates and Argentina to secure a $50 billion rescue program from the IMF to bolster investor confidence. The move may help the $279 billion South Asian economy lure capital and meet the IMF’s criterion for a bailout.
“You want to give a signal to the IMF that Pakistan is doing its homework’’ ahead of a possible loan program, said Mohammed Sohail, chief executive officer at Topline Securities Pakistan Ltd. in Karachi. There’s “pressure on emerging-market currencies including Turkey, Indonesia and India, so you have to adjust yours as well.”
The market-based adjustment is reflective of the country’s external balance of payments position, which is under pressure due to a large trade deficit, the central bank said in its statement. State Bank of Pakistan expects the devaluation, interest rate increase and other measures “to contain the imbalances in the external account.”
Some analysts expect the currency to drop further. Standard Chartered Plc cut its forecast for the rupee this month, predicting it will fall to 125 per dollar by year-end and saying the IMF may request the authorities to weaken it even further.
But Charles Robertson, the global chief economist at Renaissance Capital, said the devaluation, which he predicted earlier this year, makes Pakistan the "most competitive currency in South Asia." The decision should support the country’s export growth, he said.
Analysts say Pakistan’s economic growth will slow in 2018 for the first time in six years. The nation’s foreign-exchange reserves have dropped to the lowest in more than three years, the current-account deficit has widened, and external debt and liabilities as a percentage of gross domestic product climbed to the highest in almost six years in the first quarter.
“It was becoming increasingly difficult to manage the local currency at the current level with dropping forex reserves,’’ said Zubair Ghulam Hussain, chief executive officer at Insight Securities Pvt. in Karachi. “The nation’s current-account deficit had become sizable and foreign debt repayment obligations were also rising.”
Pakistan’s central bank increased its policy rate to 6.5 percent last month, the highest in almost three years, citing a deteriorating economic backdrop.
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