The suicide bombing attack which killed at least 53 people in Islamabad would be a big blow to foreign investment and would lead to further weakening of the rupee which is already trading at a record low, dealers and analysts said here on Sunday.
Czech ambassador and an American and German national were among the dead, while more than 270 people were wounded in the worst militant attack in the capital. "In the short-term, it's another hammering for the rupee," said a currency dealer.
"It's a big blow for foreign investment, as foreigners are going to feel less secure in investing in Pakistan, and the fact that the government is not able to control these attacks does not leave much confidence in the market."
The rupee weakened to a record low of 78.27 against dollar on Saturday because of weak economic fundamentals and the global financial crisis.
It lost 21.3 percent against dollar since the beginning of the year.
Dealers said the market was short of dollars because of the central bank's buy/swap operation. The central bank has been buying dollars in the ready market with a simultaneous commitment to sell them back in future, they said.
They said they expected the rupee to weaken past the 80-rupee mark. "It will affect the eroding rupee, as hopes of immediate foreign inflows will decline after this tragic incident in which foreigners were also killed," said Mohammed Sohail, director of equity brokering and research at JS Global Capital.
"FOREIGNERS RUNNING AWAY": Inflation here is over 25 percent. The current account deficit is widening and foreign reserves falling. Foreign currency reserves fell to $8.91 billion in the week ending on September 13, down $190 million from the previous week.
Analysts said the hotel industry would also be hit hard with foreigners more likely to stay at lower profile guest houses.
"Foreign investment would be deterred further--especially in the hospitality sector which has generated a lot of interest in recent times," said Ahsan Chisti, head of international institutional sales at BMA Capital. Dealers said stocks were not expected to take a hit because of floor placed on the KSE index but the violence would add to uncertainty that has sapped confidence in what until early this year had been one of Asia's better performing markets.
The KSE-index has shed 34.6 percent since the beginning of the year and is 41.5 percent lower than the life high set in April.
"We're making foreigners run away, sometimes by ad hoc measures such as imposing a price floor and now because of this attack," said Shuja Rizvi, director of brokering operations at Capital One Equities.
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