Rupee depreciates, gold shines

Local currency drops to two-week low at Rs172.93 against US dollar

KARACHI:

Pakistani currency maintained its downturn for the third consecutive day and hit a two-week low of Rs172.93 against the US dollar in the inter-bank market on Wednesday in the wake of prevailing uncertainty about the resumption of International Monetary Fund (IMF) loan programme.

With a fresh drop of 0.75% (or Rs1.3) on Wednesday, the rupee has cumulatively lost 1.74% (or Rs2.96) against the greenback compared to the five-week high value of Rs169.97 recorded on November 3, revealed data of the State Bank of Pakistan (SBP).

“The uncertainty related to the revival of IMF’s $6 billion loan programme is once again mounting pressure on the rupee,” Arif Habib Limited (AHL) Head of Research Tahir Abbas said while talking to The Express Tribune.

Rupee depreciation played a major role in lifting the gold price by Rs1,000 on Wednesday to a two-week high at Rs125,800 per tola (11.66 grams), said All Sindh Saraf and Jewellers Association (ASSJA) member Abdullah Abdul Razzaq Chand. Abbas recalled that the rupee had partially recovered to Rs169.9 on November 3 from the all-time low of Rs175.27 hit on October 26 on expectations that Pakistan and the IMF would reach a middle ground for the resumption of loan programme.

However, the uncertainty about the IMF programme resurfaced following conflicting reports with some citing that it was going to be resumed while others stated that the country was quitting the programme after the global lender remained tough on the conditions attached to the bailout.

“This situation took a severe toll on the rupee,” he said. “The local currency should recover some ground against the greenback to Rs169-170, once Pakistan and the IMF announce resumption of the programme,” he said. Reports suggest that Pakistan has fulfilled almost all the conditions laid down by IMF including increase in power tariff. However, the two sides are yet to reach a middle ground over the condition related to autonomy of the State Bank of Pakistan (SBP).

The government has informed IMF that it lacked two-third majority in the parliament to secure approval of the SBP Amendment Bill 2021. IMF is expected to consider the government’s position, it was learnt.

Abbas expected the demand for dollar to drop in the wake of likely decrease in import bill as the government and the central bank have introduced measures to curb it. They have imposed regulatory duty on import of non-essential and luxury items. “The measures would soon result in stability of rupee,” he said.

He said that the current account deficit is estimated to fall to $700-800 million in the month of October compared to $1.2 billion recorded in September 2021. “The likely improvement in the current account deficit would also help rupee recover some ground against the greenback.”

Gold sparkles

The gold price has maintained its shine in Pakistan mainly due to downtrend in rupee against the US dollar, as Pakistan meets local demand for the precious metal through imports.

The gold price has cumulatively surged by Rs5,600 per tola in the past five days to a two week high at Rs125,800, according to All Sindh Saraf and Jewellers Association (ASSJA). In addition to this, the gold price shot up at global markets after “the US reported 30-year high inflation at 6.2% on Wednesday,” ASSJA member Chand said.

Global investors buy gold as a hedge against devaluation of their respective local currencies during inflationary days. Accordingly, the US historic high inflation reading pushed gold to $1,868 per ounce (31.10 grams) in the intra-day trading at the London market on Wednesday compared to opening value of $1,825, he said. “The gold price should be around Rs128,200 per tola in Pakistan considering the fact that it hit intra-day high of $1,868 per ounce in the global market.”

Published in The Express Tribune, November 11^th, 2021.

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