Tariq Bajwa appointed governor: Dar criticises State Bank over rupee plunge

Finance Minister Ishaq Dar said on Thursday night that the government would appoint a permanent governor of State Bank of Pakistan (SBP) in the next few hours to carry out an investigation in the rupee plunge against the dollar and its beneficiaries. Talking to media persons after a meeting with the presidents and CEOs of commercial banks on Thursday, a day after the 3.1 percent drop in the value of rupee against the greenback; the finance minister said, "This happened because of an individual and some institutions."
Sources said that former Secretary Finance Tariq Bajwa, a trusted aide of the Finance Minister, has been appointed new governor SBP. Dar said that after the appointment of a permanent governor SBP a probe would begin into the rupee fall which, according to him, was an "artificial" adjustment. The minister said that no one including him can take the decision of making adjustment. "This was meant to give a setback to the expansionary economy," said Dar, adding that "the government policy is not to determine value of currency artificially and described the rupee plunge as "unique in the history of the country."
"Nobody has the authority to take such a major decision for artificial adjustment unilaterally," he said. Ostensibly referring to the Acting Governor SBP, he said that the government has time to appoint governor SBP till July 29 but now a permanent governor would be appointed in a day with the approval of Prime Minister upon his return from Tajikistan. He said that regulators in all the countries have the responsibility of intervention, however, the market adjusted itself before the meeting and will further stabilise, the minister added.
The minister said that an inquiry will also ascertain beneficiaries of the artificial adjustment by tracking the transaction record of the day. The heads of banks, senior officials of SBP and officials of Finance Ministry attended the meeting and spoke openly and some of them stated that they were also in a state of shock over the sudden depreciation of rupee against dollar. The minister said that foreign exchange currency dealers had also approached him to tell him that they had nothing to do with the rupee decline.
Responding to a question, he said the market made a self-correction first in the morning and returned to slightly higher than Rs 105 against a dollar. Reuters adds: Finance Minister Ishaq Dar clashed with the central bank on Thursday over a 3.1 percent plunge in the value of the rupee the previous day, denouncing an "artificial" move and vowing a new bank governor would be appointed in days. Pakistan's rupee had been stable for nearly two years, and the unexpected tumble on Wednesday caught top government officials, including Dar, off guard.
Analysts said the State Bank of Pakistan (SBP) had effectively devalued the rupee by not intervening to prop it up as it usually does. Traders say the SBP controls the thinly traded rupee market that works as a managed float, while the bank on Wednesday evening backed a weaker rupee, saying it would ease balance of payments pressures in the $300 billion economy. But Dar said the sharp drop in the rupee was harmful to national interests and criticised the central bank, saying it was not its job to worry about the current account deficit.
"The current account deficit is the work of the finance ministry and to alter it, the State Bank is not supposed to do that," an annoyed Dar told media. Deputy Governor Riaz Riazuddin was in May appointed as acting governor for three months until a permanent new chief was due to be named in late July. But Dar said that decision would be brought forward in light of the currency volatility and a new permanent governor would be appointed late on Thursday or on Friday.
'ARTIFICIAL'
Dar also said he had ordered an inquiry into what he called a "communication gap" in the central bank, and between the bank and other intuitions. The International Monetary Fund (IMF) had previously said the currency was about 20 percent over-valued but Dar had rejected that, saying in May the figure was no more than 5 percent. One analyst said such strong pressure on the State Bank by Dar called into question the independence of the central bank, which is among the most respected Pakistani institutions. "It doesn't send a good signal," said the Karachi-based analyst who declined to be identified. "Dar is a dominant personality."
Following a balance of payments crisis in 2013, improving security and vast infrastructure investment by China have spurred growth to above 5 percent for the first time in nearly a decade. But over the past year the current account deficit has ballooned again, and the IMF last month said that eroding macroeconomic stability gains could pose risks to the economic outlook. The SBP, in a statement late on Wednesday, said a weaker rupee would shore up growth and "address the emerging imbalance in the external account", referring to growing balance of payment pressures.
Raza Jafri, executive director at brokerage Intermarket Securities, said he expected the rupee to consolidate in a range of 105-108 to the dollar. "The central bank and the finance ministry will find middle ground," Jafri said.