KARACHI: Aftershocks from Thursday’s exchange rate drop continued to cascade through the financial markets on Friday as the rupee saw further decline in both the open and interbank markets and the stock market saw an 800-point fall, closing off its worst week in over a decade and half.

Large fluctuations shook the interbank market, where the exchange rate touched a high of Rs149.25 in a few trades before settling at Rs147.9 as per the State Bank’s weighted average closing rate. Some banks reported that they closed at Rs148.50. The open market closed at Rs151 as an average rate from all those offered across the country, according to data provided by the Exchange Companies Association of Pakistan (ECAP).

Within two days the rupee has lost about five per cent of its value, triggering powerful anxieties across the business community, with the financial sector on the frontlines. As confidence plummeted, Adviser to the Prime Minister on Finance Dr Hafeez Shaikh flew into Karachi on Thursday and met stockbrokers on Friday at the Sindh Club and listened to their complaints for an hour and a half.

Stock market ends worst week in 17 years; rupee hits 151 in open market; brokers meet SBP governor

Memories of 2008 were revived when the brokers asked the finance adviser to set up a “market support fund” to help rein in the continuous decline being seen on the trade floor.

After the meeting, some brokers told their media contacts that the adviser had agreed to the idea of creating the fund, and even went so far as to say that Rs20 billion would be given to the National Investment Trust for the purpose.

This claim was entirely speculative. A press release issued by the stock exchange later in the evening said only that “[i]t was also recommended that keeping in view the attractive valuations at the PSX a market support fund may be considered”.

After the meeting, the assembled delegates, along with the finance adviser, went to the State Bank to meet new Governor Dr Reza Baqir. No official announcement of that meeting was made, but sources in the brokers’ community as well as at the State Bank confirmed to Dawn that a meeting took place on the condition that the contents of the conversation between the parties would not be shared with any outsiders.

A few brokers who were present at the State Bank would only say that working of the proposed “market support fund” as well as future direction of the exchange rate and forthcoming announcement on interest rates came under discussion. The State Bank has said it will announce its monetary policy on Monday, and financial markets are preparing for a double blow from the rising interest rates and falling rupee. The announcement was due at the end of the month, but for reasons unknown, the State Bank has moved it forward by 10 days.

The local currency has been losing its value against the dollar since the government initiated talks with the International Monetary Fund for a bailout package. Still no agreement with the IMF, but currency experts and dealers believe that this devaluation is part of a possible IMF agreement in near future for a $6 billion package.

Market participants sounded fearful when reached for comment. “There should be a stop. This day-to-day devaluation and frequent reports about further devaluation have shattered the confidence of the market and eroded the value of assets,” said Samiullah Tariq, director research at Arif Habib Research.

He said the much of Pakistan’s industry, like auto, cement and pharmaceutical import raw material would take a big hit as they would have to pass on the additional cost to their customers. Rising costs in each of these industries are set to hit the economy and the common citizenry alike.

Some argued that the devaluations may well be necessary, but they should be done in one go rather than being protracted. A senior banker said the rupee was at Rs141.40 for more than a month which was a sign of stability, but the last two sessions had shattered the confidence of importers. “Whatever is the agreement, it should be open and devaluation should be done at once for a year,” he told Dawn.

Published in Dawn, May 18th, 2019