By Syed Raza Hassan and Drazen Jorgic
KARACHI/ISLAMABAD (Reuters) - The Pakistani rupee plunged more than 5 percent against the dollar on Friday in what dealers suspected was the sixth devaluation in the past 12 months, linking the move to ongoing bailout talks with the International Monetary Fund (IMF).
The currency has lost about a third of its value against the dollar since the first devaluation in December 2017, as officials have sought to tame a ballooning current deficit that threatens to trigger a balance of payments crisis.
The devaluations have stoked inflation to a four-year high and piled political pressure on new Prime Minister Imran Khan to stabilise the economy, with growth forecast to slow sharply next year.
The rupee was down 5.5 percent by 11.45 a.m. (0645 GMT), trading at about 141.50 per dollar having plunged as low as 143 in early trading, market participants said.
"It's another bout of devaluation... It's kind of ground preparation for Pakistan to enter an IMF programme," said Fawad Khan, head of research at brokerage firm BMA Capital.
Traders say the State Bank of Pakistan (SBP) effectively devalues the currency by withdrawing support in the thinly traded foreign-exchange market.
The SBP had no immediate comment when contacted by Reuters.
The bank has hiked its main interest rate by 275 basis points since January, to 8.5 percent, and another rise is expected later on Friday when SBP announces its latest rate decision.
Inflation hit 7 percent last month, the highest level since September 2014, stoking unease amid rising food prices.
The IMF predicts that economic growth, which hit 5.8 percent in the year to end of June, will slow down sharply from a 13-year high. The IMF last month predicted growth would ease to 4 percent in 2019 and about 3 percent in the medium term.
The current account deficit widened 43 percent to $18 billion in the fiscal year that ended in June, while the fiscal deficit has ballooned to 6.6 percent of gross domestic product during that period.
Saudi Arabia, a staunch ally, has promised $6 billion in short term loans to aid the economy, including $3 billion to prop up Pakistan's dwindling foreign currency reserves. China has also vowed to help, though it has not announced how much it would lend to its neighbour.
But Pakistan's economy will still need its second IMF assistance package since 2013, when the IMF loaned Pakistan $6.7 billion.
This month, Pakistan and the IMF failed to agree on a bailout package during a visit by an IMF delegation, with Pakistani officials setting mid-January as the target date for the new package to be signed off by the IMF.
Analysts say the IMF has been pushing Pakistan to weaken the rupee, and urging greater exchange rate flexibility.
"It's positive. If they're doing what the IMF is telling them, and they go for the bailout, it's a good thing for the economy," said Saad Hashemy, chief economist at local brokerage Topline Securities.
(Writing by Drazen Jorgic; Editing by Simon Cameron-Moore and Nick Macfie)
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