Miscommunication caused ‘mind boggling’ Pakistan rupee dive

Pakistan’s finance minister Ishaq Dar. Photo: Reuters

Islamabad/Karachi: Pakistan’s finance minister Ishaq Dar blamed miscommunication by “individuals” and institutions for the rupee’s biggest tumble in nine years and said a new central bank governor may be appointed as early as Friday.

Dar told reporters in Islamabad on Thursday that the rupee’s 3.1% drop on Wednesday against the dollar was “mind boggling” and there was no reason to weaken the currency as the country’s foreign currency reserves are stable.

The State Bank of Pakistan’s deputy governor wasn’t aware of the decline, Dar said, which will be probed. Riaz Riazuddin has been acting governor since 1 May and the government has until month-end to name a new head, he said. The monetary authority on Wednesday said the currency’s drop was “broadly aligned” with economic fundamentals and would help boost growth.

“The finance ministry and the central bank are not on the same page,” said Muzzammil Aslam, chief executive officer of EFG-Hermes Pakistan Ltd. “While the State Bank allowed yesterday’s free fall, the finance minister appears to have a broader view of the things.” A weak rupee boosts the cost of financing external debt and Dar “has to keep that in mind.”

The rupee climbed Thursday, adding 0.9% to 107.11 per dollar at 3:15pm local time.

Dar spoke after meeting with presidents of the nation’s banks to discuss the currency’s slump. Saeed Ahmad, the head of the National Bank of Pakistan, told reporters that an agreement had been reached to keep the rupee stable in a band of 105 to 107 per dollar.

Overvalued

There has been mounting criticism toward Pakistan’s currency policy. The International Monetary Fund (IMF) last year pointed out that the rupee was overvalued by as much as 20% and hurting its exports. The nation’s foreign exchange reserves have declined 10% this year to $16.4 billion.

In an interview last month, commerce minister Khurram Dastgir Khan said he was trying to persuade Dar to adjust the rupee’s value after the weakening of currencies by regional players including China gave them an edge over Pakistan.

“Though it came as a surprise timing-wise, this one-off adjustment was well expected and that’s why we see no panic in the currency market,” EFG’s Aslam said. “The adjustment won’t have an immediate impact, though we will see exports and imports improving within the next six months.” Bloomberg