Pakistan rupee hits fresh low

Karachi: The Pakistani rupee weakened to a record low against the dollar on Friday as investors worry about the future of the country and its economy, adding pressure on authorities to move to rescue the falling currency.

Traders said the rupee hit a record low of about 77.15 against the dollar. By the end of trade, it had pared losses and was last traded at 76.10/20.

Analysts said Pakistan's political tension and shaky economy will further pummel the rupee in coming weeks, and the government and central bank needed to take steps such as getting financial aid from abroad, and cutting imports to halt the currency's dive.

"They have very limited time available. They need to search for a helping hand from countries that can quickly give them a loan with low interest rates," said Haider Hussain, an economist at Elixir Securities.

"The long-term options are to increase investor confidence, boost exports, and cut imports," he said.

After six years of healthy growth under former president Pervez Musharraf, who quit on Monday to avoid being impeached by the coalition government, Pakistan's economy is in tatters.

Inflation is soaring, high oil prices have depleted reserves, and the trade and fiscal deficits are widening. Investors fear Pakistan cannot pay for its imports given that reserves have fallen to a level worth less than three months of imports, and this has dragged on the rupee.

Pakistan is in talks with Saudi Arabia to defer an estimated $5.9 billion worth of oil payments, and is also in discussions with the World Bank and Asian Development Bank for over $1 billion worth of loans. But none of these loans are finalised.

Yesterday's decline effectively erased all gains the rupee made when it strengthened on Monday and Tuesday on investors' hopes Musharraf's resignation will allow the government to focus on reviving the economy, and not be distracted by politics.

But that is unlikely. The coalition yesterday pushed back a deadline for the restoration of judges deposed by Musharraf last year, further delaying the resolution of a problem that threatens to split the alliance.

The rupee's previous record low of 76.95 was struck on August 15. The currency, which sunk to record lows for five consecutive sessions last week, has lost nearly a quarter of its value this year.

"It's just panic in the markets," said a currency trader who declined to be identified. "The stock market is still falling, and there is talk of rating downgrades. We just don't see any good news," he said.

The falling rupee has caught Pakistan's cash-poor central bank in a tight spot because it cannot afford to buy and support the currency.

Analysts are also divided over whether the bank should hike its key discount rate, already at its highest since June 2001.