Rupee hits life low for eighth straight session

Our Correspondent
Wednesday, Jul 27, 2022

KARACHI: Pakistan’s currency continued its downward spiral for the eighth straight session, shedding 1.31 percent or 3.05 rupees against the dollar on Tuesday, taking its slide for this year to around 32 percent.

In the interbank market, the local unit ended at 232.93 to the dollar, compared with Monday’s close of 229.88, whereas in the kerb market, it slumped to 237 against greenback against 233 in the previous session. Domestic currency depreciated by Rs4 against the dollar.

Traders said deepening political uncertainty and the lack of dollar liquidity yielded pressure on the local unit.

A foreign exchange trader, wishing to remain anonymous, said that the deep divide in Punjab over who would rule the province, and what the Supreme Court verdict would be on the Punjab chief minister’s re-election, took a toll on the economy.

“Banks are short of foreign currency as the central bank is not selling dollars to the market to curb the exchange rate volatility. Exporters are also not converting dollars and that has resulted in the scarcity of the greenback,” he added. “Some banks are opening fresh letters of credit if the outflow is equalised with the export proceeds of the clients.”

Analysts said there was a lack of stability and confidence around the currency, despite the assurance of the State Bank of Pakistan that the country would comfortably meet its financing needs for the upcoming 12 months with the International Monetary Fund (IMF) loan programme on track. This is likely to lessen the balance of payments pressure.

“Like other countries, the next 12 months will also be challenging for Pakistan. However we are fortunate to have a course available to navigate the storm,” the SBP Acting Governor Dr Murtaza Syed wrote in his op-ed at The News.

“Our fate is in our own hands but it will need strong leadership, commitment to the IMF programme, belt-tightening, and shared sacrifice. It will require being upfront with the public about the short-term difficulties we should be ready to endure to avoid permanent damage,” Syed added.

Fears about Pakistan's faltering economy have increased as the country’s currency dropped by about 8 percent versus the US dollar last week, its foreign exchange reserves decreased to $9.3 billion as of July 15, and inflation is at its worst level in more than a decade.

In the international market, the dollar is strengthening against all other world currencies, and the rupee is no exception. Even though imports are reducing, Pakistan's external account concerns have not yet been resolved.

Although the IMF has agreed to disburse a $1.2 billion loan disbursement, the inflows have not yet occurred because the executive board's final approval is still pending.

Global rating agencies have given the economy a gloomy outlook, so it is an additional weight dragging on the financial markets generally and the forex market specifically.