Pakistani rupee weakens 3.25 percent; Finance Minister Ishaq Dar slams "artificial" drop

By Asif Shahzad

ISLAMABAD (Reuters) - The Pakistani rupee weakened 3.25 percent in trading against the dollar on Wednesday in what analysts speculated could be a central bank-led devaluation to shore up the economy.

Pakistani Finance Minister Ishaq Dar said in a statement he felt "deep concern and indignation" at what he called an artificial weakening of the currency. He did not say who he thought might be responsible.

The rupee fell to 108.00 against the dollar by Wednesday afternoon, its weakest level in years, after closing at 104.896 on Tuesday.

The steep drop after a long period of stability prompted speculation that the State Bank of Pakistan - which is the biggest player in the market where it operates a de facto managed float - had allowed a devaluation to occur.

"We believe the devaluation is in response to ongoing external challenges that have seen FX reserves decline by about $4 billion from their peak of $24.5 billion last October," an analyst's note from Citibank said on Wednesday.

A spokesman for the State Bank, Abid Qamar, did not reply to queries on Wednesday.

Pakistani exporters have long complained that the rupee is overvalued, hurting their competitiveness.

Finance Minister Dar, however, "expressed deep concern, indignation and disappointment at the fact that the current political situation is being exploited by certain individuals, banks and entities".

The statement added that "the responsible persons and entities in this matter will be identified and appropriate action will be taken against them in the national interest".

(Writing by Kay Johnson; Editing by Sonya Hepinstall)