Devaluation fever spreads to Pakistan with rupee hitting 17-month low

Pakistani Finance Minister Ishaq Dar is due to meet with officials on Aug 28, discuss ways to revive exports, which Pakistan devalued its currency to support.
Pakistani Finance Minister Ishaq Dar is due to meet with officials on Aug 28, discuss ways to revive exports, which Pakistan devalued its currency to support.PHOTO: AFP

KARACHI (BLOOMBERG) - Pakistan's rupee sank to the weakest level since March 2014 as the nation became Asia's latest to devalue its currency in a bid to support exports.

The rupee depreciated beyond 104 per US dollar in the interbank market, sliding after a Chinese currency devaluation two weeks ago sparked a regional selloff in emerging-market assets. Vietnam devalued last week, as did Kazakhstan in a switch to a free float. Pakistan had kept its currency at about 102 for six months before allowing this week's retreat.

"Regional currencies were devalued so ours also followed the same path," said Kamran Zia, head of foreign exchange at Silkbank Ltd., a lender in Karachi. "There was demand from exporters on the government to devalue," which is why the central bank stopped intervening to support the rupee, he said.

The rupee declined 1.9 per cent this week to 103.94 per dollar as of 2:15 pm in Karachi, according to prices from local banks compiled by Bloomberg. It sank to a 17-month low of 104.03. It's lost 2.1 per cent since China's Aug. 11 devaluation, compared with drops of 6 per cent for Malaysia's ringgit and 2.9 per cent for India's rupee.

Pakistan's devaluation comes before Finance Minister Ishaq Dar meets with officials on Aug. 28 to discuss ways to revive exports, which sank 17 per cent from a year earlier in July, the steepest slide since March 2012. It will also boost costs for some 140,000 Pakistanis who are currently making plans to perform the Muslim pilgrimage to Mecca in September.

China's shock devaluation of the yuan on Aug. 11 has roiled global markets, prompting investors to flee riskier assets in developing nations as the Federal Reserve moves closer to raising US interest rates. South Africa's rand tumbled to a record lo on Monday as concern mounted that economic growth is slowing in China, its top export destination.

The slump in overseas shipments adds to Pakistan Prime Minister Nawaz Sharif's woes as he seeks to revive South Asia's second-largest economy that is already battling terrorism, blackouts and floods.

The rupee's fall is temporary and "there's nothing to worry about," Saeed Ahmad, deputy governor of the State Bank of Pakistan, said in comments aired on local television Tuesday. "Market forces are at work" and the central bank is watching currency movements closely, he said.

Abid Qamar, chief spokesman for the central bank, didn't immediately response to queries.

"The central bank left the rupee's fall to the market," said Taha Khan Javed, the Karachi-based head of research at Elixir Securities Pakistan Pvt., adding that the rupee could drop as low as 106 to the greenback in a month. "It's a conscious effort to follow other Asian countries and prevent exports from becoming non-competitive."