Devaluation to activate another price hikes wave

KARACHI: The unprecedented 10.6 per cent rupee devaluation in a single day on Thursday would not only trigger a new wave of price hikes but the expensive loans after the interest rate hike would hit industrial activities, warned trade and industry leaders on Thursday.

They said a weak rupee would increase the landed cost of imported goods and industrial raw materials and would make the life of inflation-hit people more miserable.

Earlier this week, the State Bank of Pakistan (SBP) had raised the interest rate by 100 basis points to a 25-year high of 17pc to tame inflation but the latest currency devaluation would limit the impact of the SBP’s efforts to check food prices.

Korangi Association of Trade and Industry (Kati) President Faraz-ur-Rahman feared the petrol prices may touch Rs300 per litre in near future.

“Costly borrowings after the interest rate hike and 10pc rupee fall, it will be hard to run the industries which means the closure of industries and loss of jobs,” he warned.

However, he was of the view that this was the last option to remove the cap on the exchange rate which should have been done by the former finance minister Miftah Ismail. The step to bring the difference between the open market and interbank rate closer was taken under some compulsion as there were no other options.

He hoped that resolving the issue of exchange rates may improve foreign remittances and inflows from multilateral lending agencies including IMF. It may also improve foreign direct investment in case the trust of investors is restored.

Karachi Wholesalers Grocers Association Chairman Rauf Ibrahim claimed that the wholesale pulses rates surged by 15pc on Thursday due to 10pc decline in rupee value. “People earning mediocre salaries will face difficulties in managing food expenditures as the price of all other imported foodstuff and locally made items will surge,” he said.

The decision to bring interbank and open market rates almost par with each other must have been taken four months back to boost remittances and export payments.

A difference of Rs 4-5 in the interbank and open market looks feasible as compared to Rs 34-35 which had encouraged black marketing of dollars in the market. “Now hopefully this will end,” he added.