- Rupee depreciation moves SBP to take action against speculators.
- Reports had emerged that some banks helped cause speculation and uncertainty in the rupee.
- The rupee has been under pressure and fell to an all-time low of 175.73 against the US dollar on November 12.
KARACHI: Amid a sharp decline in the value of the local currency, the State Bank of Pakistan (SBP) blasted banks for engaging in speculative trade in the foreign exchange market, and warned them to stay away from this activity, as it pushed to curb speculation and prevent the rupee’s free fall, sources told The News Thursday.
The SBP management held a meeting with the heads of 10-12 major banks after reports that speculative trading by some bank’s treasury officials influenced the exchange rate, manipulating the market for the sake of personal profits.
“The central bank has been concerned about reports that said some banks helped cause speculation and uncertainty in the rupee,” one source told the publication.
“The SBP has warned banks against such type of practices, otherwise strong action will be taken against them,” sources added.
The rupee has been under pressure and it fell to an all-time low of 175.73 against the US dollar on November 12.
In times of currency depreciation, traders’ guidance triggers panic buying in the market. They convince importers to buy more in a short period to make their payments so this unnecessary demand creates a shortage of dollars in the market. At the same time, they advise exporters to not sell dollars and hoard it in anticipation of further depreciation, which weakens the greenback supplies.
The sentiment on the rupee was already weakened due to the delay in the revival of the International Monetary Fund (IMF) programme. Therefore, currency manipulators used this to make quick profits. This is the speculation where the currency fluctuates without any shift in the economic indicators.
The country follows a market-based exchange rate where the currency moves are determined by the market forces of demand and supply.
Tarin blames speculators for rupee devaluation
The SBP’s move came after Adviser to Prime Minister on Finance and Revenue Shaukat Tarin blamed speculators for the depreciation of the rupee. He said that speculative elements would be disappointed as the rupee could appreciate due to the revival of the IMF bailout soon.
The SBP is likely to make a sharp move in the interest rates when its Monetary Policy Committee meets today as it wants to cool an overheated economy and tame surging inflation amid the rupee’s sharp depreciation.
The rupee seems to be undervalued as the average Real Effective Exchange Rate over the last one and three years has been 100.1 and 98.3 respectively, according to analysts.
The SBP’s last reported number was 95.9 for September.
The rupee has been facing a continual slide from the surging current account deficit as a result of higher imports. The skyrocketing global commodity prices, especially crude oil, added to the fire. The flight of dollars from Pakistan to Afghanistan since the Taliban set up the government in Kabul also put pressure on the supply side.