When many people in Pakistan were glued to their TV sets to watch Maryam Nawaz appear before the Joint Investigation Team (JIT) in Panama case and the main opposition political party, Pakistan People’s Party, was observing a "Black Day" to mark the 1977 Martial Law imposed by General Ziaul Haq on July 5, the currency market silently witnessed a 3.1 per cent slide in the Pakistan rupee’s value against US dollar in an apparent major devaluation after a 9 year cap on the exchange rate.

Rupee, which was being traded a day before at Rs104.9 against the US currency in the inter-bank trade, shed its value to Rs108.25. The devaluation was also endorsed by the regulator central bank, State Bank of Pakistan, near the close of the trading hours through a press release.

Simultaneously, there was a panic buying in the open currency market, where green back bills were unavailable even at Rs109 a dollar.

The SBP press release issued in the afternoon said depreciation had become necessary due to growing deficit in the external account. "The SBP also believes that the current exchange rate is broadly aligned with the economic fundamentals," said the press release issued by External Relations Department of the SBP.

But after the end of trading hours, Finance Minister Ishaq Dar held an emergency meeting with his finance team and bankers and later in the evening, at a press conference, blamed the acting governor of the central bank for creating a market panic by announcing "artificial" devaluation.

Dar also announced to appoint a permanent SBP governor the same night and said he has ordered an inquiry into the "reasons" behind this sudden devaluation of the Pakistani currency. Although Tariq Bajwa has been named as the new SBP governor on July 6 and an inquiry committee has been formed to probe the reasons, bankers doubt any action would be taken against the people responsible. The finance minister had also indicated that bankers have agreed to keep the exchange rate down between Rs105 and Rs107 in the coming days.

But here another question arises about autonomy of the central bank, which emphatically stated that the currency depreciation was justified due to economic situation of the country.

"It was a mysterious depreciation," said a senior banker and finance expert Dr Shahid Hasan Siddiqui, who is also the Chairman of Research Institute of Islamic Banking and Finance. In the past, the currency depreciation happened in 2008 and 2013 and the government had announced to take action against the persons responsible for that but nothing happened.

"In November 2013, speculative buying caused devaluation of rupee and Finance Minister Ishaq Dar had immediately intervened and due to his commitment to bring the dollar back to Rs98 level, it came down actually within weeks," said Dr Siddiqui. "But at that time also no action was taken against the responsible persons due to a secrete deal."

It is a matter of fact that the State Bank usually intervenes in the market whenever there is a surge in demand for dollar, but this time the central bank surprisingly did not intervene, which caused a panic and thus rupee lost its value.

Market sources said a major commercial bank had suddenly started buying the US dollar in big volumes to make international payments in order to buy another commercial bank, so there was a surge in the dollar demand in a single day. In such a situation when demand increases, the central bank had to supply foreign currency in the market to keep the exchange rate intact, but it did not happen this time. Even the central bank supported the devaluation through its press release.

Although Tariq Bajwa has been named as the new SBP governor on July 6 and an inquiry committee has been formed to probe the reasons, bankers doubt any action would be taken against the people responsible.

Although it has been an outstanding demand of exporters to devalue rupee as the current exchange rate is quite higher to compete in the international market, the Pakistan Muslim League government has successfully kept the currency rate stable. Experts believe that there are other reasons behind declining Pakistani exports and over-valuation of currency is a smaller reason.

"I also think rupee is currently overvalued against dollar as it should be around Rs112," said Dr Siddiqui, adding that soaring imbalance of trade demands to keep the currency exchange rate stable as we have to pay more for imports which are now double than exports.

Pakistani exports are declining gradually and exporters, especially the textile manufacturers, have been demanding incentives in the form of relaxation in taxes and utility charges and devaluation of currency in order to boost their exports. In January 2017, the government had announced a package for exporters worth Rs180 billion by providing incentives in taxes and other benefits.

Under the "Prime Minister Trade Enhancement Incentives" package, the government had abolished sales tax, customs duty on import of textile machinery and cotton. But all these and earlier incentives to exporters have not brought any major improvement in exports. Pakistani exporters decry over-billing, non-availability of electricity and gas and increase in prices of input material, which have made the Pakistani product uncompetitive in international market. But it is also a fact that Pakistani manufactures are investing less in value-addition of products.

According to the Federal Bureau of Statistics figures, Pakistan’s exports declined by 1.6 per cent from 20.79 billion dollar in 20015-16 to 20.45 billion dollars in the last fiscal year 2016-2017 whereas imports surged by 18.67 per cent to reach 53.03 billion dollars in 2016-17, thus showing a negative balance of trade of 32.56 billion dollars.

Banking sources said the inter-bank currency trade volume is much higher at 300 million dollar a day than the open market trade, which is around 30 million. In inter-bank, mainly imports, exports and remittances are traded through commercial banks, whereas in open market, travelers or retailers buy or sell dollars.

"The government’s timely intervention has stabilised the currency as the devaluation was not needed at this time," said Malik Bostan, President of Forex Association of Pakistan, the apex body of private foreign currency traders.

Devaluation is supposed to be harmful for the economy as it is based on imports and in such a case prices of every item would be increased. "Depreciation is harmful for Pakistan as there are over 75 billion dollar foreign debts on the country, which would further increase in rupee terms," said Malik Bostan.

When asked how long the government would keep the exchange rate at this level, Bostan said if the government wishes, it can keep it at this level for life.

Although with the government’s intervention the exchange rate has started coming to pre-July 5 levels, the credibility of central bank has come under question as experts believe the SBP’s autonomous status has been tarnished with intervention by the Finance Ministry after the SBP supported the depreciation.