Rupee moves towards all-time low

Persistent delay in resumption of IMF programme takes toll on local currency

KARACHI:

With the persistent delay in resumption of International Monetary Fund’s (IMF) $6 billion loan programme for Pakistan, the rupee dived for the fourth consecutive day on Thursday and fell to a two-week low of Rs174.19 against the US dollar in the inter-bank market.

The rupee is just Rs1.08 away from the all-time low of Rs175.27 hit two weeks ago on October 26, according to data of the State Bank of Pakistan (SBP).

With a fresh drop of 0.72% (or Rs1.26) on Thursday, the rupee has lost a total of 2.48% (or Rs4.22) against the greenback compared to the five-week high of Rs169.97 recorded on November 3.

The free fall of the rupee, however, sent gold prices soaring for the sixth consecutive day. The precious metal soared Rs3,300 to a two-week high at Rs129,100 per tola (11.66 grams).

“Prolonged delay in the resumption of IMF programme is taking a toll on the rupee,” Ismail Iqbal Securities Head of Research Fahad Rauf said while speaking to The Express Tribune.

The delay has raised questions whether the IMF would resume the programme or Pakistan would opt to quit it as “chances for which are next to nothing,” he said. “The uncertain situation has sparked volatility in the rupee.”

Reports suggest that Pakistan has fulfilled almost all IMF conditions including the increase in power tariff. However, the two sides are yet to reach an agreement on the condition of autonomy for the SBP.

Read Rupee depreciates, gold shines

The government has informed the IMF that it lacked the two-thirds majority in parliament needed to secure approval of the SBP amendment bill. The IMF is expected to consider the government’s position.

The Asian Development Bank (ADB) has also announced that it will play its role in resuming the IMF programme.

Earlier on October 26, the rupee hit an all-time low of Rs175.27 against the US dollar. Later, it recovered to Rs169.97 by November 3 in the wake of Saudi Arabia’s announcement of a $4.2 billion assistance package for Pakistan.

On the other hand, expectations about the revival of IMF programme also lent support, Rauf recalled.

Under the ongoing cycle of depreciation, the rupee may return to the all-time low of Rs175.27 and remain there until the next loan tranche is approved by the IMF.

The real effective exchange rate (REER) – Pakistan’s cost of trade with the world – would move to 93-94 points once the rupee “depreciates to around Rs175, which means that the currency has become notably undervalued.”

“The rupee shedding its value beyond Rs175 will be unlikely if the IMF announces resumption of the programme,” he said.

“The currency will drop to Rs190 in case the global lender delays the matter for another three to six months,” he said.

Pak-Kuwait Investment Company Head of Research Samiullah Tariq said that the rupee was losing ground due to higher demand for dollars to pay for imports and its lower supply.

Read Rupee decline persists, currency loses Rs1.39 in intra-day trading

Pakistan’s current account deficit remained high mainly on the back of a ballooning import bill. “A current account deficit of over $500 million a month is unaffordable. It will keep denting the rupee’s value,” he said.

The current account deficit stood above $1 billion a month in the first three months (July-September) of the ongoing fiscal year 2021-22.

Gold surges

The bullion is short of just Rs1,900 from its record high of Rs132,000 registered two weeks ago.

“The uptrend in the precious metal in global markets multiplied the price of the commodity in local markets as demand for the metal is met through imports,” AA Gold Commodities Director Adnan Agar said.

Gold maintained uptrend in international market on the back of US reporting 30-year high inflation at 6.2% on Wednesday. Investors may opt for profit taking at current levels, he said.

Published in The Express Tribune, November 12^th, 2021.

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