A day after financial markets were rocked by a sudden depreciation in the value of the rupee against the dollar, Finance Minister Ishaq Dar announced that a new governor of the State Bank of Pakistan (SBP) may be appointed as soon as Prime Minister Nawaz Sharif returns from his two-day visit to Tajikistan.
The minister made the announcement after meeting the presidents of domestic banks and financial institutions, who had been summoned to Islamabad on Thursday for an emergency meeting after the rupee witnessed a sharp fall against the dollar a day earlier.
The rupee had plunged 3.1 per cent in the opening hours of interbank trade on Wednesday, sparking a shortage of foreign currency in the open market as dealers preferred to hold rather than sell.
By midday, the dollar had risen to Rs108.50, before settling at Rs108.25 by close. This was the largest single drop in the rupee's value in nine years.
"I made the decision to call this meeting yesterday after banking hours closed," Dar said, revealing that the presidents of banks were summoned, along with the State Bank's deputy governor of Banking and head of Treasury. The chairman of the Federal Board of Revenue and the finance secretary also attended the meeting which, Dar said, continued for two hours.
"The market adjusted itself before the meeting began," Dar claimed in his presser, adding that a communication gap was the reason behind the fall in the rupee.
The minister said that in his initial reaction to the fall in the currency's value, he thought that the political situation in the country had led to speculation in the market, triggering a depreciation in the value of the rupee.
"It was mind-boggling when we saw that in a few hours [the rupee] had slided [so sharply]," he said.
"Unfortunately, a communication gap [has become apparent as] the reason behind the fall," the minister claimed.
Insisting that the "market adjusts its own value — no one has the right to determine the value of the currency," Dar said that a more detailed inquiry into the matter will be conducted.
Somewhat contrary to his claim that the dollar-rupee exchange rate would be determined by market forces, the finance minister also said it had been decided that the value of the dollar against the rupee would be maintained between Rs107 or Rs105.
He added that although the Constitution allows three months before a new governor of the State Bank has to be appointed, the process of doing so will be expedited.
"A new, permanent governor will be appointed today or tomorrow after PM Sharif returns," Dar said.
The SBP had held its silence as the slide of the rupee continued unabated the day earlier, creating serious concern amongst bankers as rumours swirled that the move might have been engineered to advance political goals.
However, hours after the close of trade, the central bank issued a statement owning the move, saying it had become necessary due to the growing external account deficit.
“The exchange rate adjusted in the market and the SBP is of the view that this depreciation in the exchange rate will address the emerging imbalance in the external account and strengthen the growth prospects of the country,” said the SBP, adding that it also believes “the current exchange rate is broadly aligned with the economic fundamentals.”
A source in the State Bank had told Dawn that the decision was actually months in the making. “This was a decision made at the State Bank, nowhere else,” he said.
The move had drawn a sharp reaction from the finance ministry. A strongly worded statement called the decline “artificial” and said it had “negatively affected our foreign exchange markets”.
This was the first open rift between the SBP and finance minister, who has been dominating the bank’s affairs for the last four years.
The central bank is currently headed by Riaz Riazuddin as an acting governor, who is a career SBP staffer. His term runs till July 28.
