Pakistani rupee hits fresh low amid political tension

Karachi: The Pakistani rupee weakened to a record low against the dollar yesterday, hit by political uncertainty and a poor economic outlook, putting pressure on the central bank to raise rates to prevent a run on the currency.

The central bank said the rupee closed at 73.35/39 to the dollar, the lowest level since an all-time low of 72.85/90 set on July 8, according to Reuters' records.

Analysts said the central bank needed to further raise interest rates to prevent the falling rupee from fuelling inflation, which is already at its highest in more than three decades.

"The central bank's priority is to stabilise the currency and inflation expectations because a big run on the currency would be even worse," said Tim Condon, an economist at ING Bank in Singapore. "The authorities have to do something to calm expectations of the ever-higher rupee level against the dollar," he said.

The central bank last raised rates by 1 per cent to 13 per cent in July to tame inflation.

Following the rupee's last record closing low of 72.85/90 on July 8, the bank temporarily suspended forward booking of foreign currency for all imports, removing the most simple way for importers to hedge against a weakening rupee.

Political uncertainty and economic problems have pummelled the rupee this year. It is down 19 per cent against the US dollar.

President Pervez Musharraf, a former army commander and a staunch US ally, is facing a possible impeachment by the ruling coalition government. Musharraf's spokesman said yesterday he would not resign.

Moody's said on Monday it would keep its B2 rating on Pakistan because the rating adequately reflected political risk. High oil prices have depleted the government's foreign exchange reserves and widened the trade deficit.