Rupee likely to continue downward trend

Recent recovery in currency was seen on expectations of increase in supply

KARACHI: The rupee is expected to continue losing its value against the US dollar in short-to-medium run, as the stringent conditions on which  the International Monetary Fund (IMF) has formally approved the bailout of $6 billion for Islamabad would keep mounting pressure on the local currency.

The rupee lost Rs0.36 to Rs156.92 to the US dollar in the inter-bank market on Friday, ahead of some stringent conditions.

The conditions include making rupee-dollar exchange rate fully free-float and the government would make no interference in setting up gas and power tariffs with the objective of bringing circular debt to zero, going forward.

Rupee recovers, closes at 160.05 against dollar

Earlier, the local currency had regained 4.56%, or Rs7.49, in the previous four consecutive working days (June 28 to July 4) on expectation of increase in supply of dollars in the economy, as Qatar deposited $500 million into the State Bank of Pakistan's (SBP) foreign currency reserves and IMF was also expected to immediately release the first tranche of $1 billion of the total $6 billion bailout package approved on July 3.

"The rupee is likely to remain under pressure against the US dollar over the next six to eight months," Arif Habib Limited Head of Research Samiullah Tariq said in a comment to The Express Tribune after going through the IMF press statement on the bailout package.

IMF press release carries "tough language (conditions for the bailout)," he said.

He said the statement give an impression that Pakistan would continue to face dollars shortage, as inflows would remain lower than outflows, going forward.

"The rupee would remain under pressure till inflows and outflows stand equal in the system," he said, adding that Pakistan needs to further reduce imports by at least 10% over the next six to eight months and increase exports and remittance by a cumulative 10-15%.

He said that Pakistan is to pay a huge sum of foreign loans over the next two to three years. The situation would keep pressure on the rupee.

Rupee stable against dollar

However, the sale of new 3G and 4G internet licenses to mobile phone companies and the inflows recorded on account of privatising state-owned assets would help reduce pressure on rupee in the medium to long run, Tariq said.

Gold lost Rs900

Gold lost Rs900 to Rs78,100 per tola (11.66 grams)  in Pakistan on Friday despite no change in price of the imported commodity at world markets while rupee slightly lost its value against the dollar.

"We have revised down gold price keeping in view a significant drop in demand for the commodity at local market," All Sindh Saraf and Jewellers Association President Haji Haroon Chand said.

"(Almost) no one is coming to buying counters at jewellers' shops as people's purchasing power has badly been impacted due to high inflation in the country," he said.

To recall, the association used to revise up gold price following drop in rupee value like one the markets recorded on Friday.

Published in The Express Tribune, July 6^th, 2019.

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