KARACHI: Pakistani currency failed to sustain its uptrend and depreciated Rs1.18 to Rs161.65 to the US dollar in the inter-bank market on Tuesday as demand for foreign currency surged and inflows remained sluggish.
“The rupee came under pressure as demand for dollar surged after the government lifted a month-long ban on import of crude oil and refined products (like petrol and diesel) on Saturday,” Exchange Companies Association of Pakistan (ECAP) Chairman Malik Bostan told The Express Tribune.
“Besides, foreign currency inflows may hit rock bottom on account of poor export earnings and worker remittances in response to the coronavirus pandemic,” he said.
With the latest depreciation of Rs1.18, the rupee has cumulatively lost Rs1.67 against the greenback in the past two working days, according to the State Bank of Pakistan (SBP). Commercial banks and the inter-bank market were closed on weekly holidays on Saturday and Sunday and for Zakat deduction at the beginning of Ramazan on Monday.
Pakistan lifted the ban on imports after demand for petroleum products emerged from rural areas where farmers were harvesting the staple crop of wheat these days.
“The system may see additional demand for dollar,” Bostan said.
The country imported petroleum products worth $668.33 million in March, according to the Pakistan Bureau of Statistics (PBS).
The government imposed the ban on imports after refineries temporarily shut down their plants. Oil storage capacities had been filled as demand for fuel plunged under the nationwide lockdown imposed to contain Covid-19.
“Demand for dollar may remain high in the short run ahead of another round of extended holidays this week,” the ECAP chairman said.
The market would remain closed on Friday (May 1) on account of Labour Day and on Saturday and Sunday for weekly holidays.
He said foreign investors had been big buyers of dollar since March. They have continued to pull out short-term investments from government debt securities like 3 to 12-month treasury bills.
They have withdrawn a total of $2.84 billion from the debt securities in the past five to six weeks in response to the Covid-19 pandemic against an investment totalling $3.69 billion since July 2019, according to the central bank.
Topline Research recently anticipated the rupee to touch Rs168-170 to the US dollar by the end of June 2020.
Earlier, the rupee had recovered on the back of International Monetary Fund’s (IMF) approval and release of low-cost emergency loan of $1.38 billion for Islamabad in the fight against the Covid-19 crisis.
On the other hand, the inflow of foreign currency would remain sluggish. “The World Bank has projected worker remittances for Pakistan to fall 23% in FY20,” Bostan said.
Besides, export earnings would also take a big hit after some of the world buyers cancelled export orders to Pakistan in recent days, he said.
“Worker remittances and export earnings are the only two major sources of dollar inflows into Pakistan and both are in huge trouble,” he said.
The country’s foreign currency reserves would, however, remain stable in the medium run after the IMF provided the emergency loan and similar financing is also being extended by the World Bank and Asian Development Bank (ADB).
“The World Bank and the ADB have doubled the offer of emergency loans to $5 billion,” he said.
Besides, the G20 countries may defer Pakistan’s debt repayment worth $1.8 billion till December 2020. The move would also ease pressure on the rupee, he said.
Published in The Express Tribune, April 29th, 2020.
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