KARACHI: With a persistent decline in Pakistan’s foreign currency reserves that were not enough to bear the cost of two months of imports, the rupee weakened to a record low of Rs119.35 to the US dollar in the open market on Friday.
During the day, the currency also hit a new all-time intra-day low of Rs119.80 to the US dollar, according to Dollareast Exchange Company’s website.
On Thursday, the rupee had closed at Rs119.10 to the greenback, according to the forex.pk website.
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In the inter-bank market, the rupee, however, stood stable at Rs115.61, showed data of the State Bank of Pakistan (SBP).
Experts said the fast depleting foreign exchange reserves of the central bank - which have dropped to a four-year low of $10.03 billion as on May 25 and low inflows on account of sluggish exports and workers’ remittances - have given an impression that the upcoming elected government would let the rupee further depreciate in a bid to give a boost to exports and attract higher inflow of remittances.
This, along with a slow pace of dollar flow to currency dealers, has brought no respite for the rupee for quite a long time.
The expected depreciation has prompted many to hoard dollars for a better return later. In addition to this, the central bank’s new condition for foreign currency buyers and sellers to show identification documents at the time of buying and selling $500 or more has also slowed down the flow of dollars to the dealers.
Protectionism of the rupee and then its free fall
Pakistan Forex Association President Malik Bostan pointed out that renewed pressure on the rupee came in the wake of heavy additional demand for foreign currencies from Umrah pilgrims these days.
“A great number of people go to perform Umrah during Ramazan,” he said, adding, “two million Pakistanis have been given Umrah visas since December 2017.”
In the same period last year, 1.6 million people had been issued Umrah visas, he recalled.
Elaborating, Bostan said except for Umrah and Hajj demand, the UAE dirham and Saudi riyal normally remained in surplus and were used to import dollars from Dubai in exchange.
However, “such foreign currencies are not in surplus now which has impacted the flow of dollars to the open market as well.”
Last week, Moody’s Investors Service - one of top three global credit rating agencies - forecast that Pakistan’s rupee could shed value by another 7.75% and its worth may drop to Rs125 against the dollar by June next year.
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In the recent past, the SBP has let the rupee weaken by 9.5% in two rounds (5% in December 2017 and 4.5% in March 2018) in the inter-bank market to help narrow down a widening current account deficit and save fast depleting foreign exchange reserves.
Former finance minister Miftah Ismail has categorically denied further depreciation of the rupee while SBP Governor Tariq Bajwa has said the rupee is near its true equilibrium.
Earlier, the SBP said all buy and sell transactions in foreign currency equivalent to $500 or above would require exchange companies to obtain and retain copies of identification documents - CNIC, NICOP or passport in the case of a foreigner.
The move came as Pakistan looked to strengthen its anti-money laundering and combating financing of terrorism regime ahead of the Financial Action Task Force (FATF) meet-up in June.
Resultantly, the dollar rate started to increase.
Nationwide, currency dealers buy around $2-3 million each day from individuals in the open market. This supply dropped to less than $1 million due to the condition of showing identification documents.
“Buyers and sellers prefer to purchase and sell foreign currencies to unauthorised and unregistered currency dealers…this is the reason behind the low supply of dollars to legal currency dealers,” Bostan added.
Published in The Express Tribune, June 2nd, 2018.
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