PHOTO: REUTERS
Pressure on the rupee mounted as some of the foreign investors pulled out their investment from the government debt securities amid the fast spread of coronavirus.
With a fresh drop of around Re1 on Wednesday, the local currency has cumulatively depreciated by Rs4.18, or 2.71%, to Rs158.42 to the US dollar in the inter-bank market in the past three days (Monday-Wednesday), according to the State Bank of Pakistan (SBP).
Foreigners have sold sovereign debt securities worth $341 million so far in the current month. With this, a total of $721.5 million has flown out mostly in February and March. This outflow comes to around one-fifth of the total investment of $3.5 billion foreigners made since July 2019. After the outflow, the net investment dropped to $2.7 billion, the SBP reported.
“The depreciation of the rupee was due to panic foreign selling of the sovereign debt securities…due to spread of the coronavirus,” BMA Capital Executive Director Saad Hashmi said while talking to The Express Tribune.
“Market intelligence suggests panic seems to be over now. Remaining foreign investors may prolong their stay in Pakistan…due to a much higher rate of profit on investments compared to a nominal return in many countries around the world,” he said.
Investors may stage a comeback in the coming months when the coronavirus is contained across the world, including Pakistan.
“Besides, the crash of international oil market, where prices dived around 30%, will provide a much-needed support for the rupee’s recovery against the dollar,” he said.
The plunge in crude oil prices should save Pakistan $5-6 billion a year in oil imports. “The saving will help the rupee strengthen going forward. Rupee may fluctuate around current levels over the next few days,” he said.
However, the foreign selling may increase and the rupee will fall further if the world fails to contain the virus, which has spread to around 100 countries.
People need securities and commodities to invest part of their savings to avoid the impact of high inflation. “Pakistan’s debt securities offer comparatively higher profits. The rate of profit is expected to remain high in the months and years to come. Foreigners will reconsider investing in Pakistan as soon as the virus is contained,” Hashmi said.
Exchange Companies Association of Pakistan (ECAP) former general secretary Zafar Paracha added that foreigners were selling the debt securities ahead of a likely cut in the benchmark interest rate by the central bank next week. The sales impacted the rupee against the US dollar.
Published in The Express Tribune, March 12th, 2020.
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