Pakistani rupee plunged as much as 10% on Tuesday against the US dollar on a devaluation move by the State Bank of Pakistan (SBP). It was the fifth devaluation by SBP in less than a year. In contrast, the country’s stock market jumped nearly 3% as Pakistani government began preparation for the 13th IMF bailout in the last 30 years. The Pak rupee vs dollar rate plunged PKR 11.70 in the interbank market to hit a historic low of PKR 138 on Tuesday.

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Has Pakistan ‘shot itself in the foot’ by devaluing Pak rupee vs dollar?

The Pak rupee vs dollar exchange rate has been declining consistently over the last few weeks. The exchange rate was PKR 127.80 on Saturday, according to Dawn News. Over the last few days, the open market rate has been PKR 4-5 lower than the interbank rate. The dramatic decline in the value of Pak rupee could trigger panic in the market. The State Bank of Pakistan wants to devalue the currency to secure a bailout package from the International Monetary Fund.

The IMF has demanded Pakistan to devalue its currency by as much as 15% before they would consider a bailout. IMF chief economist Maurice Obstfeld said Tuesday that the Pakistani rupee was “too rigid and overvalued.” Citing a broker, Reuters says the SBP has indicated that it wants the currency to go with the market forces. Even though the central bank’s official position is that the PKR trades freely, the currency is widely believed to be under a managed float.

An SBP spokesperson said, “The market is aware about the overall macroeconomic conditions and based on those conditions, they are having their own expectations about the exchange rate, so that is driving (the rupee valuations) currently.” The SBP has little firepower to bring the rate down considering its dwindling forex reserves.

Market experts told Dawn News that the Pak rupee vs dollar rate was already reflective of its true position, which means Islamabad need not devalue the currency further. One expert said the government had “shot itself in the foot” by devaluing Pakistani rupee on the IMF’s demand.