KARACHI: The dollar hit as high as Rs109.80 in the beginning of the Monday session in the interbank market, creating panic among importers.
However, the greenback closed at Rs108.40-50, still higher than the benchmark of Rs107 provided by the State Bank of Pakistan (SBP) on Friday.
In a statement on Dec 8, the central bank had justified the sudden devaluation in the exchange rate, calling it a “market-driven adjustment”. Currency dealers and bankers were not clear as to how much devaluation the SBP required. The rapid fluctuation in the dollar rate forced many dealers to stay away from the market.
However, exporters found the situation beneficial. Export receipts fell from $25 billion to $20bn in the last four years.
“The recent devaluation will help exportable products become competitive in the international market. The government had no choice as the trade deficit has crossed all limits,” All Pakistan Textile Mills Association (Aptma) Vice Chairman Amir Fayaz told Dawn.
He rejected the notion that the devaluation will make imports costlier and ultimately hurt exports. He said imported components are less than 10 per cent in textile exportable products.
The textile industry would import 2-2.5 million bales this year. The devaluation will make textile imports costlier. But Mr Fayaz said the country exports textile products worth $12.5bn while the expected cost of imported cotton bales will be less than $1bn. This means the devaluation will have a small impact on textile exports, he said.
“In all modern financial markets, there is a concept of forward guidance to model expectations and limit volatility. Here the sitting premier said there would be no devaluation; and now we are seeing a 4pc drop in two days,” said Sabir Kaleem, an importer of food products. Pakistan imported food products worth $5.4bn in 2016-17.
He also challenges the view that the devaluation will stop the rapid increase in imports, which created a trade deficit that is bigger than total exports of the country.
“It takes more than just devaluing the rupee to restrict imports and increase exports. But the devaluation sure does reduce our purchasing power parity, increase inflation and swell the debt per capita,” he said.
Importers said the costly imports of petroleum products will ultimately translate into a higher cost of exportable products. The open market also witnessed volatility and closed at Rs108.50 for buying and Rs109.50 for selling.
“Today, demand for dollars suddenly increased. It indicates that dollarisation is in the offing, which is certainly a bad sign,” said the secretary general of the Exchange Companies Association of Pakistan. He said uncertainty created by the sudden devaluation must come to an end as soon as possible.