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Finance minister intervenes to arrest slide in rupee's value

Finance Minister Ishaq Dar

Islamabad, July 7 (UiTV/IANS) - Pakistan's central bank may get a new head as a sudden depreciation of the rupee against the dollar rocked the financial markets, Finance Minister Ishaq Dar said on Thursday.

The State Bank of Pakistan (SBP) will see changes as soon as Prime Minister Nawaz Sharif returns from a two-day visit to Tajikistan, the Dawn quoted Dar as saying. "A new, permanent Governor will be appointed today or tomorrow."

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 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 Rs 108.50, before settling at Rs 108.25 by close. This was the largest single drop in the rupee's value in nine years, Dawn reported.

"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 slid (so sharply)," he said. "Unfortunately, a communication gap (has become apparent as) the reason behind the fall."

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 would be conducted.

The SBP's silence over the rupee's slide created 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 central bank is now led by Riaz Riazuddin as acting Governor. His term runs till July 28.