Pakistan's Rupee Heads for Sixth Weekly Decline Against Dollar

By Farhan Sharif

Oct. 10 (Bloomberg) -- Pakistan's rupee headed for a sixth weekly decline, even as the central bank intervened to support the currency, on speculation the government will default.

The currency fell 1.2 percent this week to 79.185 per dollar as of 11.40 a.m. in Karachi. It fell 0.01 percent today. The rupee reached 79.60 on Oct. 8, the lowest level since Bloomberg started compiling data on the currency in 1988. Pakistan will send a delegation to the U.S. next week as it seeks $10 billion in emergency assistance to pay its debt.

Standard & Poor's this week cut the nation's long-term foreign currency rating by two levels to CCC+, a grade that ranks it above only the Seychelles in terms of creditworthiness, and said further reductions may be necessary. A global stocks rout is also prompting investors to seek safer bets than emerging-market assets.

``The fundamentals are against rupee and investors turned even more cautious after the S&P rating cut,'' said Syed Nabeel Iqbal, head of marketing and research at Khanani & Kalia International Ltd., a Karachi-based foreign-exchange trader. ``The central bank's measures supported rupee, but the rising trade gap and high inflation will keep it depressed at least for the short-to-medium term.''

Pakistan's foreign-exchange reserves have dropped 67 percent in the past year to about $4.7 billion, while the nation has about $3 billion of debt-servicing costs due in the coming year. Pakistan is the world's riskiest government borrower according to credit-default swap prices from CMA Datavision.

Central Bank

State Bank of Pakistan, the nation's central bank, pumped foreign currency into the market to prop up the rupee, after it fell to record low. The central bank also said it will allow banks to set aside smaller reserves to boost cash in the financial system.

``We have intervened in the market,'' Syed Wasimuddin, the central bank spokesman, said yesterday by telephone from Karachi. He didn't say how much was added.

The central bank advised foreign exchange companies ``to ensure uninterrupted supply'' to their customers, according to a statement by the Karachi-based State Bank today. ``The State Bank also assured the exchange companies of its support in case of any liquidity requirement.''

Government bonds were unchanged with the yield on the benchmark 9.6 percent bond maturing in August 2017 holding at 14.35 percent.

To contact the reporters on this story: Farhan Sharif in Karachi, Pakistan, at fsharif2@bloomberg.net.