Further depreciation of rupee to ignite price hike Staff Report/Daily The Pak Banker KARACHI Further devaluation of rupee against the US dollar and other major currencies last week would ignite price hike and increase inflation. Last week the open market dollar-rupee exchange remained jumped over 101 rupees while inter-bank exchange rate remained around 100 rupees. A few days before elections, dollar-rupee parity hit the mark of 100 rupees in the open market, but after the victory of PML(N) in the elections, the exchange rate descended to around 98 rupees which anticipation that it would further decline. However, after the signing of $5.3 billion dollars loan deal with IMF, the dollar-rupee exchange rate’s jump to over 101 rupees in the open market seems very disturbing for the investors, importers and consumers who feel that the renewed devaluation trend may be the demand of the IMF. Because neither the State Bank of Pakistan nor the Ministry of Finance had taken any measure against this record dollar-rupee exchange rate that can move further. Capital market analysts believe that all the imported items, including petrol would become more expensive if the value of rupee further lost ground against the US dollar and other major currencies. The foreign investors would also face another shock when their income and profit in rupees would further shrink due to devaluation, analysts said. Since 2008 the dollar-rupee exchange rate had ballooned from 63 rupees to 101 rupees. Former President & COAS Pervez Musharraf inherited exchange rate of 46 rupees, handed over government to PPP with 63 rupees exchange-rate. PPP government has handed over power to PML(N) with 98 to 99 rupees dollar-rupee parity. After elections we were hearing that the PML(N) government would reign in the unbridled growth of dollar against rupee, but the actual situation has been different and disappointing as well as dollar-rupee crossed over 101 in the open market, they said. Pakistani rupee exhibited depreciation of 9.1 percent against US$ in interbank market during FY12 compared to nominal depreciation of 0.5 percent in FY11. However, the trend in decline of PKR value during the year has been gradual. This exchange rate trend reflects the prevailing demand and supply conditions in the market as current account balance decreased from a nominal surplus in FY 11 to a deficit of US$4.7 billion during FY12. Most of the regional currencies remained under pressure and witnessed weakening trend. Emerging market economies were adversely affected due to bleak outlook of exports and investments as a result of concerns about economic growth prospects of the developed nations. Depreciation of several currencies vis-à-vis US Dollar remained more pronounced than that of Pak Rupee. As current account as well as overall balance of payment witnessed significant decline compared to their FY11 levels, foreign exchange reserves of the country also witnessed a declining trend in FY12. Foreign exchange reserves stood at US$15.3 billion level at the end of FY12 compared to FY11 figure of US$18.2, showing a decrease of around US$3.0 billion during FY12. However, due to proactive management of SBP, the decline in the reserves during the year has been gradual that helped avoid any undue negative impact on the market sentiment. End
Posted on: Mon, 15 Jul 2013 08:45:47 +0000