Just a week before Eid bad news hit with the rupee losing 3.8 percent against the dollar in what was being reported as the central bank’s decision to devalue it.
In the inter-bank market, the dollar has been trading as high as Rs121.5.
The rupee was devalued twice by the State Bank of Pakistan in the last six months, roughly by around 5% in December and then by the same amount in March.
“It was expected. So far no intervention was seen by the State Bank. It is expected that the central bank’s intervention may come soon just to keep the dollar within the rage of 120,” Fawad Khan, head of research at BMA Capital, told Reuters.
Former finance minster Miftah Ismail had already hinted at the devaluation. In an interview with SAMAA TV, Ismail had said that doing this won’t drastically increase inflation.
Some analysts believe that the Pakistan Muslim League-Nawaz-led government’s failure to take unpopular steps to address the core economic issues such as the current account deficit and circular debt in an election year has led to the grim situation.
Wave of inflation before Eid
Talking to SAMAA TV, economist Muzammil Aslam said that the devaluation could bring a wave of inflation right before Eid.
The interim government is in power for only six weeks and they have been put under so much pressure, he said, adding that the caretaker government doesn’t have the resources to solve it overnight. “Now, it is just day-to-day crisis management. This [the devaluation] could create panic among the public,” he added.
Going to IMF for a bailout?
Experts fear that the situation might even force the incoming government to go back to the International Monetary Fund for a bailout package. The last bailout was taken in 2013 and was worth $6.7 billion.
The widening current account deficit coupled with record low foreign exchange reserves at $10.03 billion have been mounting pressure on the country’s economic managers.
On May 18, the State Bank reported that the country’s current account deficit has widened 50% to a record high of $14.03 billion in the first 10 months of the current fiscal year 2018.