A sudden devaluation of Pak Rupee against the US Dollar was witnessed in interbank trading on Friday morning as the Rupee hit an all-time high at Rs144. However after intervention by the State Bank of Pakistan, the Dollar closed at Rs137.70 in the interbank market.
According to sources, the increase in the value of US dollar is based on the government’s commitments to the International Monitory Fund (IMF). However Finance Minister Asad Umar denied that the sudden fall in the currency’s value was linked to negotiations with the IMF for a financial bailout package.
It is pertinent to mention that the major demands put forth by the IMF for the bailout include increasing general sales tax (GST) to 18%, further depreciation in the rupee and a tighter monetary policy.
Asad Umar claimed that the devaluation was necessary because of a number of reasons, including increased foreign loans, decreased foreign exchange reserves, low exports and artificial cap on the value of dollar. While admitting that devaluation was “not a good thing” as it increases inflation, Umar concluded:
“The devaluation coupled with other policies will produce positive results.”
Due to the latest depreciation of the local currency, the total debt owed by Pakistan has risen to Rs 760 billion. According to Pak Kuwait Investment Co AVP Research Adnan Sheikh:
“In line with expectations, the rupee continues its three-monthly slide against the dollar and at this rate, we are on track for Rs 160-170 by June next year.”
The rising value of US Dollar is expected to affect all major sectors including the automobile industry. Due to constantly depreciating Rupee value, the year 2018 has already witnessed up to 5 price revisions by automakers operating in Pakistan. Since December 2017 onwards, car prices have already gone up with an increase of up to 200,000 on each local assembled model.
Since December last year, the currency has cumulatively depreciated by 29.5% and if Pak Rupee keeps on declining, auto consumers of Pakistan might get hit by another price revision quite likely in near future.