Rupee loses further ground in inter-bank market

Drops 1.11% which takes overall depreciation to 15% since Dec 2017

KARACHI: With a fresh drop of 1.11% on Tuesday, the rupee has cumulatively depreciated by 15.38% to a record low of Rs121.73 to the US dollar in the inter-bank market since December 2017 due to growing imports and fast depleting foreign currency reserves.

In the open market, the rupee fell Rs0.50 to an all-time low of Rs124.50 to the greenback, currency dealers confirmed to The Express Tribune.

“Traders believe the rupee may drop to Rs125 by June 30 (in the inter-bank market),” said Pakistan Forex Association President Malik Bostan.



“The fall in inter-bank rupee rate triggered panic buying of dollars in the open market. Today (Tuesday), we were short of dollars as demand surged. The situation may remain uncertain (in the open market) on Wednesday as well,” he said.

The former PML-N government and the present interim political set-up have let the rupee weaken substantially in a bid to avert mounting pressure on the country’s foreign currency reserves, which have dropped to less than two months of import cover at $10.07 billion, according to the State Bank of Pakistan (SBP).

Experts said the objective of the depreciation was to revive sluggish exports and slow down swelling imports. However, it was yet to work as contrary to expectations, imports reached a record high of $5.8 billion in May 2018.



The country also needs an additional $5 billion to pay off its debt and make interest payments by the end of December.

Accordingly, with the imbalance in external trade and an insignificant increase in workers’ remittances, the trade and current account deficits have widened, piling more pressure on the reserves.

In a bid to shore up the reserves, caretaker Finance Minister Dr Shamshad Akhtar is seen mobilising bankers and stockbrokers to make the tax amnesty scheme successful and the first dollar-based savings certificates for overseas Pakistanis.

Independent economists and individuals estimate that $1-4 billion will be added to the foreign currency reserves through the scheme.

Besides, the government has estimated to receive another $500 million to $1 billion in the next one year through the launch of dollar-based savings certificates for overseas Pakistanis.

Her efforts, however, have failed to stabilise the rupee-dollar parity as uncertainty prevails.

Experts said the devaluation would push up inflation, prompting the central bank to increase its key policy rate soon, make credit to the private sector more expensive and finally impact the economy.

They added that the devaluation would speed up inflationary trends in the country as it would make the country’s imports much more expensive due to higher oil prices in the international market. Pakistan relies heavily on imported fuel oil, which comes to almost one-fourth of annual imports.



The central bank elaborated the other day that the downward adjustment in rupee’s value reflected mounting pressure on the country’s foreign currency reserves.

“The market-based adjustment is reflective of the country’s external balance of payments position, which is under pressure due to a large trade deficit,” SBP said in a recent statement.

Published in The Express Tribune, June 20^th, 2018.

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