Investors cautious as Pakistani rupee weaken on a likely central bank devaluation - Alldamoney

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Investors cautious as Pakistani rupee weaken on a likely central bank devaluation

On Tuesday trading the Pakistan's rupee weakened sharply against the dollar to about 115.5 per dollar in early trading from 110.5 at Monday's close in what Abid Qamar, spokesman for the State Bank of Pakistan (SBP), say was a "market driven" event explained to be a forex devaluation attempt through that country’s central bank, making it the second such intervention within the last 3 months.

Earlier in December amongst balance of payments pressures from the widening of its current account deficit and dwindling foreign reserves pushed the State Bank of Pakistan to devalue the local currency by about 5 percent. Foreign-exchange reserves have since dropped 30 percent to $12.1 billion in the past year.

And though the Pakistan's economy has been growing at above five percent, the fastest pace in a decade, a surge in imports has widened its current account deficit and triggered analysts to suggest that the country may require a bailout from the International Monetary Fund (IMF) in coming months.

The currency slide apparently points to the central banks withdrew of support, as in the managed float system Withdrawal of support would have the effect of devaluing the currency as the State Bank of Pakistan (SBP) is the most influential player in the sparsely-traded local foreign exchange market and controls the local market.
After the rupee weakened," the Topline Securities brokerage said in a flash note to clients on Tuesday morning that "We believe this is much needed as Pakistan's external account has deteriorated as of late.

Investors have been careful with flows to Pakistan after the authorities said it intend to issue up to 100 billion rupees ($902 million) of local debt. Pakistan last issued dollar debt four months ago to shore up deteriorating finances with its economy showing increasing signs of vulnerability.
The market was broadly expecting currency devaluation from the SBP this year.

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