Pakistani rupee continued its downward trend on Tuesday as it fell to its lowest ever closing at Rs171 against the greenback in the inter-bank market.

The local unit depreciated 0.18% to Rs171.04 against the US dollar in comparison to Rs170.74 on Monday.  

The rupee has depreciated a total of 1.7% or Rs2.88 since September 20 when it had dropped below a 13-month low of Rs168.43 which it had touched in August 2020 as per the data of the State Bank of Pakistan (SBP).

During the current fiscal year, the rupee has declined 8.57% or Rs13.5.

Head of Research at Pak-Kuwait Investment Company Samiullah Tariq said, “Hike in global commodity prices is a major reason behind the surge in demand for the US dollar in the inter-bank market. The price hike has widened the country’s import bill. Supply of dollars through export earnings and workers’ remittances remain weak compared to strong demand for the greenback to pay for surging imports”. Tariq added that the widening demand and supply gap is also taking a toll on the local currency.

The global crude oil benchmark, Brent touched a multi-year peak of $83.48 per barrel on Monday. Prices of LNG and coal imports have also spiked.

Prices of imported food items including wheat, sugar and cooking oil have remained on an upward trend in the international market.

Head of Research at Arif Habib Limited Tahir Abbas said, “The share of energy in the total import bill of Pakistan stands at around 25%”.

The rupee is projected to stabilize as soon as the $6 billion International Monetary Fund (IMF) loan programme resumes by the end of next week. It is expected to settle at around Rs168-169.

Once, the loan programme resumes, it will make way for the release of the next IMF loan tranche of $1 billion. In addition to that, the World Bank and the Asian Development Bank (ADB) are scheduled to lend an additional $1.4 billion for various projects.

Talking about the resumption of the IMF programme and receipt of the loan tranche, Tahir said, “The developments will ease pressure on the rupee.”

Tariq said, “The lack of central bank intervention (by supplying dollars) in the inter-bank market is causing the rupee to depreciate.”

According to Abbas, the market is afloat with rumours suggesting that the IMF programme is about to resume as Pakistan has accepted its demand for a price hike in electricity tariffs in two phases. In addition to that, the country’s tax collection has remained robust in the current fiscal year to date.

“A further clarity on the IMF programme will ease pressure on the rupee,” Abbas added.

According to Abbas, the central bank and the government have taken measures to lower the pressure on the local currency which should show results between November or December and demand for the dollar would likely drop.

The government and the central bank asked traders to submit 100% import payment in advance for 114 luxury and non-essential items, increased regulatory duty on imports, directed banks to submit reports on demand for dollars from importers and tightened car financing.

“The cumulative impact of all the measures would be witnessed with a lag of about three months in the shape of reduction in demand for dollars in the economy. ”Abbas added.     

The story was filed by the News Desk.
The Desk can be reached at info@thecorrespondent.com.pk.

LEAVE A REPLY

Please enter your comment!
Please enter your name here