KARACHI/MUMBAI - Pakistan's rupee plunged the most in nine years after the central bank was said to have devalued the currency as South Asia's second largest economy showed signs of stress ahead of elections next year.
The rupee fell 3.1% to 108.1 against the dollar at 2.29pm local time on Wednesday, the lowest level since December 2013, according to data compiled by Bloomberg. The move was a "long-overdue" devaluation, Karachi-based Topline Securities said in a research note. State Bank of Pakistan spokesman Abid Qamar declined to comment.
The International Monetary Fund last year pointed out that the currency, which operates under a managed float regime, was overvalued by as much as 20% and was negatively impacting its exports. In an interview last month, Pakistan's Commerce Minister Khurram Dastgir Khan said he was trying to persuade Finance Minister Ishaq Dar to adjust the rupee's value after the devaluation of currencies by regional players including China, India, Turkey and Thailand gave them an edge over Pakistan.
The central bank "did the devaluation by allowing some import payments to be made through the interbank system," Fawad Khan, research head at BMA Capital Management Ltd, said by phone.
The move may help the nation curb a rising deficit and boost falling exports as Prime Minister Nawaz Sharif looks to contest national elections next year. The nation's trade gap has increased about 60% to $3.5 billion in May compared with same period last year.
The rupee's strength "was leading to a wider current account deficit and depreciation pressure on the currency," said Divya Devesh, a Singapore-based Asia foreign-exchange strategist at Standard Chartered Plc. "We were forecasting a move toward 108 in USD-PKR by end-year."
The IMF last month said economic stability reached under a three-year $6.6-billion loan programme that ended last year has begun to erode. Pakistan's current account gap has more than doubled to $8.9 billion in 11 months ended May compared with $3.2 billion in the same period last year.