PHOTO: FILE
KARACHI: The rupee depreciated by a notable Rs1.07 to two-and-a-half month low of Rs167.65 against the US dollar in the inter-bank market after the government allowed private sector to import wheat in a bid to overcome shortfall and curb flour prices.
It is just Rs0.24 away from the all-time low value of Rs167.89 recorded on April 7. The Economic Coordination Committee (ECC) of the cabinet allowed the private sector on Monday to import wheat - the staple crop for Pakistan - to overcome the shortage and stabilise wheat flour price in the country.
Market talks suggest that the rupee lost ground against the greenback due to international payment pressure toward closing of the current fiscal year on June 30. “Rupee is losing on the so called year-end closing pressure,” an official heading the treasury department of a bank said while talking to The Express Tribune.
The import of wheat would not, however, be a huge burden on the country’s foreign currency reserves. The grain could be imported at a cost of a few million dollars. In the past, currencies belonging to emerging markets like Pakistan used to depreciate towards the end of fiscal years due to higher imports during the year. However, in response to Covid-19, demand for dollars to pay for import has dropped due to significant contraction in imports in Pakistan, he said.
“This (depreciation) is based upon poor sentiment,” he said. “Rupee should recover soon after end-June.”
The developments suggest that Pakistan would get $3 billion in loan from international financial institutions and friendly countries. Besides, G20 and Paris Club have deferred Islamabad’s foreign debt repayment worth $2.8 billion for about one year.
The country will resume making such payments after December 2020.
“The development should have appreciated rupee instead,” he said. “However, a slight mismatch of timing between the scheduled inflows and outflows, mainly for imports, has depreciated the rupee for the time being,” he said.
Some of the research houses had anticipated rupee to close at around Rs170 by end of June. The local currency has depreciated Rs4.55, or 2.78, in the current month of June to date compared to May’s closing of Rs163.10.
The currency stood at Rs154.23 against the greenback at the end of February 2020 compared to the then record low closing of Rs164.04 on June 27, 2019. Fitch Ratings said last week that Pakistan’s external position stood fragile given the sovereign’s high external debt repayments.
Liquid foreign exchange reserves remain low at around $10.1 billion, “but import compression has increased reserve import cover to about 3.6 months,” it said.
“Moreover, lower oil prices are expected to offset the decline in remittances (and exports), which will keep the current account deficit stable at around 2% of GDP through FY21.”
Gold hits record high
Gold gained Rs1,100 per tola (11.66 grams) to a new record high of Rs103,100 in Pakistan on Tuesday.
It has maintained uptrend for the fourth successive day in line with global trend. Investors are relocating capital to gold from currencies worldwide as the precious metal is strengthening and currencies are weakening on likely outbreak of second wave of Covid-19 around the world.
Cumulatively in the past four working days (Thursday to Tuesday), the bullion has gained Rs4,400 or 4.5%, to Rs103,100 per tola.
Published in The Express Tribune, June 24th, 2020.
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