The Pakistani currency hit an all-time low of Rs 168.94 against the US dollar in the inter bank market on Tuesday in the wake of burgeoning import payments and trade deficit, signalling that demand for the foreign currency remained higher compared to its supplies. The rupee has lost 7.28 percent or Rs 11.51 to date since the start of current financial year. Depreciation of rupee is not good news for the consumers already hit hard by the price hike of essential commodities. The high value of the dollar directly increases the cost of imported goods including food items and crude oil and indirectly causes high inflation.
People should be very careful before believing analysts who claim that the rupee has no further downside because all the life has already been squeezed out of it. In hindsight such tactics are often exposed as desperate attempts to shore up the local currency without having to intervene in the money market. Yet so strong is the slide of the rupee that it is unlikely to succeed. And already there are reports, not refuted by the SBP or the finance ministry, that the central bank did in fact intervene by selling more than a billion dollars from its reserves to try and keep the rupee stable; but it failed; which means that more than a billion dollars of urgently needed foreign exchange ended up in money heaven with nothing at all to show for it.
One big reason for the confusion was also the uncertainty caused by an ineffective central bank. It seems that the situation was too unpredictable for SBP Governor Reza Baqir to handle right at the start of his stint. That is all the more reason for the finance ministry as well as the prime minister’s office to intervene and, at the very least, bring some sort of clarity to the situation. Consumers and businesses are suffering alike because the only thing they know for certain is that the rupee is too volatile for them to conduct commerce and that the government is importing inflation because of the weakening rupee; something that cannot go on indefinitely without a very visible collapse.
Markets hate uncertainty even more than bad news; since they are still able to factor in the latter. It’s no surprise, then, that the rupee’s troubles have dragged the buoyant stock market down with it as well. Governor SBP, through his silence, has been guilty of negligence that borders on the criminal, but hopefully the uncertainty will be brought to a quick end even if the bad news is expected to roll in for a while longer.
