On a cold December night in 2013, Ishaq Dar proffered unsolicited advice to the wealthy textile exporters gathered at the colonial Governor’s House in Lahore: “If you have dollars, sell them now. The rupee is going to bounce back... You should trust me when I tell you that the rupee is going to improve from now on.”

His emphatic tone didn’t impress the textile tycoons, who were already feeling disappointed by Prime Minister Nawaz Sharif’s last-minute decision to skip the extravagant dinner they had arranged, in the hope of extracting favours for the industry, and ask his finance minister to fill in his place.

But his tough talk angered everyone for ‘publicly naming and shaming them’ and calling them ‘dollar hoarders’.

Nevertheless, the rupee, which was in a free fall on the back of fast-plunging central bank reserves that had plummeted 9 per cent between July and November to a 12-year low of $2.9bn a week before the Aptma dinner, started to strengthen the very next morning. By Dec 19, the currency had recovered by 1.9pc to the greenback.

It wasn’t the first time Ishaq Dar, who often insists that he is ‘allergic’ to the very idea of devaluation, had proved his critics wrong. He had brought the rupee back to Rs54 to the dollar after it had tumbled steeply to Rs67 a dollar in the wake of the country’s nuclear tests in May 1998.

Nor was it the last time he would shout down the rupee.

Hence, the country’s financial markets were taken by surprise when the State Bank of Pakistan (SBP) did not intervene to pump dollars in the interbank market when the rupee suddenly plunged the most in nine years last Wednesday.

Rather, the bank was of the view that “this depreciation (of by 3.1pc in a single day) in the exchange rate will address the emerging imbalance in the external account and strengthen the growth prospects of the country... the current exchange rate (of Rs108.25 to the dollar) is broadly aligned with the economic fundamentals.”

The immediate reaction of the minister was of ‘deep concern, indignation and disappointment’ at the move as he blamed ‘certain individuals, banks and entities for exploiting the current political situation (with the JIT report in the Panama case expected to be finalised today)’.

He called the bank presidents to Islamabad the next morning for a meeting where everyone agreed that the rupee should be traded with the band of Rs105-107 to the dollar, which helped settle the exchange rate at Rs105.7 to the dollar in a few hours last Thursday.

Piling the blame for the ‘fiasco’ on acting governor Riaz Riazuddin, Finance Minister Dar announced the appointment of his trusted bureaucrat Tariq Bajwa as SBP Governor for a three-year term.

The markets were also rife with rumours — both innocent and sinister — with some dubbing it as the ‘first act of defiance by the central bank to adjust the exchange rate to its real value’.

A few wondered if this depreciation was ‘orchestrated by Rawalpindi’.

Others believed that Ishaq Dar himself was behind the central bank’s move, citing Commerce Minister Khurram Dastgir’s recent statement that he was persuading the all-powerful finance minister to adjust the rupee’s value as the country’s exports were getting hurt due to regional rival’s currencies’ weakening in the international markets.

Still others thought it was the result of expectations of devaluation built in the last 12-18 months in the wake of an IMF estimate that Pakistan’s currency is overvalued by 20pc.

A leading businessman with interests in banking, textiles, real estate and several other businesses whom Dawn spoke with dubbed the whole mess a result of a ‘misunderstanding’ on the part of an individual as stated by Mr Dar.

“I don’t think the acting governor was defying the government when he decided to let the rupee tumble. He doesn’t have any market-related experience and wasn’t in touch with the finance ministry. He just let the market forces of demand and supply play freely.”

He was of the view that the real value of the rupee to the dollar was around Rs120.

“Since our currency is overvalued it is hurting our exports.

“Adjusting the rupee to the dollar will help boost exports, enlarge capital formation, increase tax collection and bridge the widening current account gap in the long-run.”

He did not agree with Mr Dar that a weaker rupee would spike the cost of external debt financing.

“Devaluation is a purely economic decision. You must not look at the economy from the point of view of an accountant,” he argued and added that Mr Bajwa also did not have any financial market experience and would be the minister’s puppet.

A Karachi-based analyst pointed out that expectations of rupee devaluation had been building for last one year and a half.

“With foreign exchange reserves coming under pressure during the last six months or so and upward revision of 11-month current account deficit (for July 2016-May 2017) to $10.6bn — after reconciliation of the SBP and Pakistan Bureau of Statistics data —businessmen, bankers and the financial markets were expecting the adjustment sooner or later.

“Nevertheless, a sudden and steep slide in a single day did shock everyone and fuelled expectations for further weakening of the currency, something the central bank tried to calm down by issuing the press release last Wednesday evening.”

He was of the opinion that the rupee did not need further devaluation. “The 2pc-3pc decline in rupee value is good enough for now as the rupee has been stable for the last two years.

“Now is the time to stabilise the currency at the new level (of up to Rs107 to the dollar) to manage speculations and expectations and help foreign investors return to Pakistan.”

He agreed that devaluation helps increase exports and curb imports for some time. But, he pointed out, the weakening of a currency always fuels inflation, affects the level of people’s well-being, raises the cost of production and spikes the price of foreign debt servicing in the long-run.

“All the benefits of devaluation erode in a year or two and we are back to square one calling for another exchange rate adjustment.

“You want to boost exports, improve the industry’s competitiveness instead of subsidising exporters by weakening the currency.”

Published in Dawn, The Business and Finance Weekly, July 10th, 2017