Dollar and gold continue smashing dearness record

[ahlam1399]

KARACHI: The rupee plunged 3.29 percent to a record low against the dollar on Wednesday in what appeared to be currency devaluation by the central bank ahead of IMF bailout package approval due next month.Gold price has also soared and business at stock exchange witnessed decline. The government has also decided to increase gas and electricity tariffs substantially.The rupee closed at 162.16/dollar, compared with previous close of 156.98 in the interbank market. The rupee weakened Rs5.18/dollar during the day. The currency was traded as low as 162.25 to the dollar in an intraday trade.The rupee weakened Rs6.1 to close at Rs163/dollar in the open market.Dealers said the rupee came under renewed pressure and the State Bank of Pakistan (SBP)’s reticence also fueled speculative onslaught on the battered currency.“It was another volatile trading day despite a lack of payment pressure,” a dealer said. He said, “The market expects rupee will face more pressure in coming days as the government is about to get IMF approval on $6 billion loan package.”The IMF’s board is due to meet on July 3.The economy is going through a familiar boom-and-bust cycle; debt is soaring, inflation is rocketing, and reserves are falling after a deficit blowout. The IMF has long advocated Pakistan to loosen its grip on the rupee, and estimated the real exchange rate was overvalued by as much as 20 percent in 2017.Market participants said there are also reports that government has already signed letter of intent and memorandum of economic and financial policies for securing approval of $6 billion loan from the IMF’s board.“The rupee is likely to weaken further, trading at 180/dollar in the next months,” said another dealer.Samiullah Tariq, director research at brokerage Arif Habib, said dollar recorded increased on back of importers demand and some of the oil payments. “Moreover, due to year end closing some of the multinational companies might have buying dollars to repatriate their earnings to their principles.”The rupee has lost more than 50 percent of its value since December 2017, stoking inflation and becoming the worst performance Asian currency.Reuters, quoting SBP, reported that the central bank said it was watching the foreign exchange market closely and would act in the case of “unwarranted” volatility. It said the recent slide “reflects the continuing resolution of accumulated imbalances of the past and some role of supply and demand factors”.The SBP governor, earlier this month, defended the market-based exchange rate system that he said staved off external finance risks in the past couple of months.Governor Reza Baqir, in his first press brief, reiterated the central bank’s resolve to intervene in the market to check ‘excessive volatility’ and ‘disorderly conditions’.He said currently market-based system is implemented in Pakistan, which protects exchange rate from manipulation and simultaneously follows demand and supply mechanism.Neither fixed not free-float regime of exchange rate is good for Pakistan, as former can lead to external imbalance and latter can lead to manipulation, governor viewed.Meanwhile, the Economic Coordination Committee (ECC) of the Cabinet extended conditional approval for hiking gas tariff up to 191 percent and average power rates by Rs1.49 per unit for consumers using over 300 units.With second power tariff in last six months, the government will generate Rs190 billion from the consumers. The government hiked the electricity tariff by Rs1.27 per unit in January 2019.The ECC granted its approval and now final approval would be sought from the federal cabinet before implementing this decision. The ECC also decided to withdraw Rs3 per unit for export-oriented sectors with the condition that the subsidy will continue for peak hours.The government has accomplished almost all prior actions agreed with the IMF staff except one more action pending which will be fulfilled soon.Pakistan will have to fulfill all conditions before tabling Pakistan’s request in front of IMF’s Executive Board scheduled to meet at Washington DC on July 3 for approving $6 billion under 39 months Extended Fund Facility (EFF).http://feeds.feedburner.com/~r/com/cwEr/~4/leOA5vZW6lI

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