Rupee depreciates around 1%

Drops to Rs161.48 in inter-bank market due to higher foreign currency outflow


Afreen Mirza July 20, 2021

KARACHI:

Pakistani currency depreciated Rs1.54, or 0.95%, and closed at a nine-month low of Rs161.48 against the US dollar in the inter-bank market on Monday apparently due to increase in the outflow of foreign currency on account of a significant rise in imports.

The currency had last closed above that level at Rs161.82 on October 22, 2020.

The rupee came under pressure the same day when the State Bank of Pakistan (SBP) announced that the current account balance had turned into a deficit of $1.6 billion in June - the highest since December 2018.

The spike in the deficit, which was reported after the close of inter-bank market, still impacted the rupee-dollar exchange rate.

“The rupee depreciated sharply by almost 1% in a single day as the market had an idea about the current account balance, which was announced by the central bank after the close of market,” Pakistan Kuwait Investment Company Head of Research and Development Samiullah Tariq said while talking to The Express Tribune.

He pointed out that Gulf countries remained closed on Monday on account of Eid ul Azha holidays due to which the inflow of remittances slowed down.

However, the depreciation of the rupee was expected as the overall sentiment along with rising oil prices, increase in gold demand and uptick in imports hinted at a decline in the currency value.

The continuously rising petroleum oil prices in the international market added to the pressure on balance of payments as the country relied heavily on energy imports, which resulted in depreciation of the local currency.

Worker remittances and export earnings are the two major sources of dollar inflows into Pakistan. While remittances surged 9% to $2.7 billion in June 2021 compared to the same month of last year, exports of goods increased by $368 million and imports of goods rose by $1.4 billion.

A large import bill reduced the supply of foreign currency to the inter-bank market and as a result the rupee depreciated.

“Increase in oil prices internationally and payments due from Pakistan made the rupee weaker and the dollar stronger,” stated Alpha Beta Core CEO Khurram Schehzad.

“The currency is expected to stay under pressure on the back of rising oil prices,” the CEO predicted.

Furthermore, country’s reliance on external debt in order to repay the old debt is increasing, which also impacts the rupee-dollar parity negatively.

Earlier, on July 9 the foreign currency reserves held by the central bank were recorded at $17,205.6 million, down $26 million compared with $17,231.1 million recorded on July 2.

Published in The Express Tribune, July 20th, 2021.

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