Daily Times

It is noticed with growing concern that the rupee’s mysterious slide continues with every passing week and unless the state bank steps in and sheds some light on this phenomenon there could be a very real risk of investors getting spooked, which can also result in a run on the rupee. It’s no secret that the local currency comes under pressure whenever debt payments are due. But in the absence of a clear explanation market pundits should be forgiven for assuming, with good reason, that we are seeing a text-book carry crash at play; where our higher-than-average interest rate attracted leveraged speculators who ate off the interest rate differential with currencies of countries with lower rates and now that the rupee is depreciating such bets are unravelling.

It’s also a bit of a concern that the central bank is clearly having to step in to the money market now and then and stabilise the local currency. And that not only runs afoul of its own promise of not intervening and letting the currency float on its own, something that will not sit well with investors who count on monetary authorities to keep their word, it will also eventually dry our national reserves; which the PM himself has to go out on a limb every now and then to build up. So the less time the state bank wastes and bringing clarity to the situation the better.

Surely nobody can forget that the weakening rupee is constantly driving up our debt servicing as well as import costs, which can completely dismantle the ideals behind the expansionary budget that the government is so eager to implement successfully. It would be a different matter altogether if the currency weakness was bolstering exports to some degree. But since that is also not happening for some reason, it is all the more necessary to investigate the reasons behind this unceremonious fall and address them. The state bank has so far done a stellar job in supporting the federal government with its incentive packages throughout the pandemic. Now it must go a step further and stabilise the currency market as soon as possible.

It is all the more necessary because the rupee’s slide is making some of the government’s claims, like improved reserves, favourable balance of payments, a much healthier current account, record remittances, and better exports, sound hollow. It is, in fact, adding to inflationary pressures and making life very difficult for both producers and consumers. The government also claims that it has enforced checks on illegal transfer of foreign exchange out of the country. Yet when there were no such controls the rupee was stronger and it is collapsing as they are enforced. Either the government’s line, or its critics’, is therefore true. And it is up to the State Bank of Pakistan (SBP) to take centre stage and explain what is really going on. *