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 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 2.2 percent this week to 104.28 per dollar in Karachi on Tuesday, according to prices from local banks compiled by Bloomberg. That’s the lowest close since March 2014. It’s lost 2.4 percent since China’s Aug. 11 devaluation, compared with drops of 6.2 percent for Malaysia’s ringgit and 3.6 percent for India’s rupee.
Pakistan’s move comes before Finance Minister Ishaq Dar meets with officials on Aug. 28 to discuss ways to revive exports, which sank 17 percent 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 U.S. interest rates. South Africa’s rand tumbled to a record 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.
The rupee’s positioning is due to global currency movements and not domestic weakness, the central bank said in a statement on Tuesday. It added it will take “any measure” to ensure market stability.
“The rupee was devalued but the central bank will not say it officially,” said Taha Khan Javed, the Karachi-based head of research at Elixir Securities Pakistan Pvt., adding that the currency 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.”
The rupee was quoted at 105 per dollar at money changers in the kerb market on Tuesday, according to Karachi-based Exchange Companies Association of Pakistan.
For more, read this QuickTake: Currency Wars