(Bloomberg) -- Pakistan's rupee plunged the most in nine years, prompting the government to say that it was concerned by the “artificial” weakness in the currency.
The rupee tumbled 3.1 percent to 108.095 per dollar at close of trading Wednesday, the lowest level since December 2013. Analysts including Karachi-based Topline Securities Ltd., BMA Capital Management Ltd. and BMI Research said the nation had devalued its currency.
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 percent and hurting 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 weakening of currencies by nations including China, Turkey and Thailand gave them an edge over Pakistan.
Dar in a statement issued Wednesday evening said certain individuals, lenders and entities were “exploiting the current political situation,” a reference to a team probing corruption allegations against Prime Minister Nawaz Sharif and his family. The nation's stocks dropped the most globally on Monday as Sharif's son appeared before the team.
In contrast to Dar, the State Bank of Pakistan said in a statement the rupee's fall will strengthen the country's growth prospects, is “broadly aligned” with economic fundamentals and will address the “emerging imbalance in the external account.”
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, said by phone.
Pakistan's benchmark KSE100 Index rose as much as 2.1 percent, led by stocks gaining from a weaker currency, before closing little changed.
To see why the rupee has been stable for past two years, click here
The move may help the nation curb a widening deficit and boost falling exports as Sharif looks to contest national elections next year. Pakistan's trade gap has increased about 60 percent to $3.5 billion through 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 program 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.
The “State Bank of Pakistan will continue to closely monitor the developments in the foreign exchange markets and stands ready to ensure stability in the financial markets,” the central bank said.
--With assistance from Ismail Dilawar
To contact the reporters on this story: Faseeh Mangi in Karachi at fmangi@bloomberg.net, Kartik Goyal in Mumbai at kgoyal@bloomberg.net, Kamran Haider in Islamabad at khaider2@bloomberg.net.
To contact the editors responsible for this story: Chris Kay at ckay5@bloomberg.net, Karthikeyan Sundaram
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