By Aamir Latif
KARACHI, Pakistan (AA) – The Pakistani rupee fell 3.1 percent against the U.S. dollar on Wednesday to its lowest level in nine years.
The rupee depreciated to a record 108.25 against the dollar before trading at 104.90 on Tuesday, according to data complied by the Pakistan Forex Association, a representative body of money exchangers.
The move is seen as a long overdue devaluation as economists believe that Pakistan’s central bank, which controls the currency through a floating regime, did not intervene this time.
In the past, the State Bank of Pakistan would pump dollars into the local currency market, in order to control the rupee’s actual value against the dollar.
"This is not a surprise move. It was long overdue because the rupee was artificially overvalued by the central bank by supplying dollars to the open market," Rizwan Bhatti, a Karachi-based economic analyst, told Anadolu Agency.
Referring to last year’s report of the International Monitory Fund over an artificial overvalue of the rupee by 20 percent, Bhatti said that the central bank was left with no option but to watch in silence, because intervention would negatively impact the country’s exports.
“We believe this was long overdue as the rupee has been relatively stable since August 2015. Further, during the last 10 years, it has devalued annually by 5 percent,” Topline Pakistan Research, a Karachi-based security and stocks research company, said in its report on the latest development.
- Trade deficit
According to the report, the key reason behind the devaluation is the widening current account deficit, which rose sharply $3.2 billion in 2016 to $8.9 billion in 2017, a 9-year high.
The rise can be largely attributed to a 40 percent increase in the trade deficit to $23 billion, driven by higher imports and lower exports, the report added.
Last month, Finance Minister Ishaq Dar had hinted at a nominal rupee devaluation of 4-5 percent this year.
The central bank commented on the depreciation in the exchange rate positively, saying that it will address the imbalance in the external account and strengthen growth prospects in the country.
"While almost all macroeconomic indicators have been showing an encouraging picture, such as the decade-high real gross domestic product (GDP) growth, increase in investment, credit expansion to the private sector, and subdued inflation, the deficit in the external account has been rising for some time," the bank said in a statement.