ISLAMABAD: Finance Minister Asad Umar on Friday ruled out a further devaluation of the rupee, which has lost about 25 per cent of its value over the past year, urging people to invest in the stock market and not waste money buying dollars.
Since coming to power in August, much of the government’s focus has been in staving off a balance of payments crisis. It is in talks with the International Monetary Fund (IMF) over a 13th bailout since the 1980s which is expected in the next few weeks.
Consumer price inflation rose in March to its highest since November 2013. Energy costs in particular have risen sharply, hit by a series of a devaluations.
“Today, State Bank of Pakistan has given a categorical statement that rupee is in equilibrium. Central bank cannot speak clearer than this,” Finance Minister Asad Umar said in a speech at the Pakistan Stock Exchange shown on television. “There is no reason of big devaluations.”
He added that there were no demands for what the exchange rate should be in the talks with the IMF.
Traditionally, Pakistan has kept its exchange rate over-valued, incurring losses to the economy, the finance minister said. The rupee should be aligned with its fundamentals and its benchmark should be the real effective exchange rate (REER), he added.
The minister advised the people not to waste money buying dollars, but instead invest in the stock market.
“One should not say the rupee would comfortably become stable or inflexible in terms of movement. It will remain flexible, but one should not expect big devaluation,” Fawad Khan, head of Research at BMA Capital Management Limited, told Reuters.
“The finance minister’s remarks would help bring stability,” Khan said.
“Overall, the statement has been taken positively by the equity market,” he told Reuters.
“The question of whether the finance minister should have given this statement or not was another issue,” Khan said, because the management of the exchange rate is the joint responsibility of the ministry of finance and the central bank.