KARACHI: The rupee maintained its downturn on the third successive working day, as it weakened by another 1.20% to close at a new all-time low of Rs149.65 to the US dollar in the inter-bank market on Monday, according to the State Bank of Pakistan (SBP).
Before the day’s closure, the rupee hit 151.50 to the greenback for the first time in history, it was learnt. Cumulatively in the three days, the local currency has lost 5.84%, or Rs8.26, from Wednesday’s close of Rs141.39 under the new round of depreciation.
The rupee continued to lose ground against the dollar, as “demand for dollars remains higher than supply,” Arif Habib Limited Head of Research Samiullah Tariq told The Express Tribune.
“Market determined (the) exchange rate,” he said.
To recall, the International Monetary Fund (IMF) had conditioned to let the market forces decide rupee-dollar exchange rate going forward. Implementation of this condition was a must to acquire IMF board’s final approval for its 39-month long loan programme worth $6 billion for Pakistan. The government entered into the IMF programme on May 12 and the IMF board is expected to meet sometime in June.
At open market the local currency weakened to Rs153 to the greenback, according to forex.pk.
Adviser to Prime Minister on Finance Abdul Hafeez Shaikh said last week that it is the State Bank of Pakistan’s (SBP) monetary policy committee, which is responsible to determine rupee-dollar exchange rate keeping in view the foreign currency demand and supply situation in the country. There was speculation in the market that the rupee may drop to 165-170 to the US dollar under the current cycle of depreciation.
Earlier in the previous six rounds, the central bank had let the rupee depreciate by staggering 34% since December 2017 to Wednesday’s (May 15, 2019) close of 141.4 in the inter-bank market. Cumulatively, rupee weakened 41.8%, or Rs44.15, since December 2017.
Rupee likely to stabilise
Exchange Companies Association of Pakistan (ECAP) Secretary General Zafar Paracha said the central bank has let the rupee depreciate towards the most talked level of 150 to the greenback in the inter-bank market.
“I guess the drop in the rupee (value) is enough for the time being,” he said. “Authorities would maintain it (rupee-dollar exchange rate) for some time.”
He said the return of individual foreign currency sellers to exchange companies counters also suggest return of stability in the rupee against the dollar. “Dollar (and other foreign currencies) supplies have normalised to around 80% in the open market compared to almost next to nil on the first two days of the rupee depreciation (on Thursday and Friday),” he said. Simultaneously, the spike in dollar demand has also cooled down to normal.
The foreign currencies supply is likely to surge as Umrah pilgrims are set to return to Pakistan in the second half of Ramazan. “They (pilgrims) would come to exchange dollar and riyal at exchange companies’ counters,” he said.
Moreover, workers remittances are expected to improve following the latest rupee depreciation. In addition to this, tens of thousands of workers would also bring foreign currencies when they come to celebrate Eid from abroad.
He said that open market continued to follow inter-bank market, as spread between rupee value at inter-bank and open market has reduced to very nominal, he said.
High foreign debt
Forex Association of Pakistan (FAP) President Malik Bostan said demand for dollar had shot up due to forthcoming foreign debt repayments. “Pakistan has to payoff foreign debt worth $37 billion in the next two years, including to IMF and friendly countries.”
Pakistan has increased foreign debt to pay off previous foreign debt.
To recall, Pakistan’s foreign expenditures (mainly imports and debt repayment) have remained much higher than its foreign income (mainly export proceeds and workers remittances inflows). The higher expenditures were partly financed through the country’s foreign currency reserves. Accordingly, the reserves dropped to five-year low at around $7 billion in the near past. Drop in the reserves badly impacted the country’s capacity to make international payments especially on two counters; imports and foreign debt repayments.
The situation caused Pakistan to book record high $19 billion current account deficit in the previous fiscal year 2018. In the first nine months (July-March) of the current fiscal year 2019, however, the current account deficit has narrowed down 29.5% to $9.6 billion compared to $13.6 billion in the same period last year. The drop came due to cut in imports mainly because of completion of several early harvesting projects under the multibillion-dollar China-Pakistan Economic Corridor (CPEC) and a massive 34% rupee depreciation since December 2017, experts said.
Published in The Express Tribune, May 21st, 2019.