Pakistani currency extended its decline for the fifth consecutive day on Friday and hit an all-time low of Rs175.73 against the US dollar in the inter-bank market, as importers resorted to panic buying of the foreign currency while exporters avoided selling it ahead of clarity on the IMF loan programme.
The rupee lost another 0.88% (or Rs1.54) to close at a record low of Rs175.73. It hit the previous all-time low of Rs175.27 on October 26, according to the central bank data.
The rupee had dropped below Rs176 against the greenback at one point during intra-day trading in the inter-bank market on Friday.
Meanwhile, it dipped to Rs178 against the dollar in the open market, reported the Exchange Companies Association of Pakistan (ECAP).
“Uncertainty about the IMF programme remained the primary reason behind the free fall of the rupee,” Arif Habib Limited (AHL) economist Sana Tawfik said while talking to The Express Tribune.
“In addition to this, panic buying of the US dollar by importers to make oil import payments worth $80 million during the day mounted pressure on the rupee.”
“Importers arranged the oil import payments in haste from the local market since the US market was closed on account of Veterans Day on Thursday,” she pointed out, adding that Pakistan maintained a Nostro account in New York, which was used to facilitate foreign exchange and trade transactions.
The rupee should rebound next week as Saudi Arabia has given formal approval to depositing the promised $3 billion in the State Bank of Pakistan’s (SBP) account. “The central bank is expected to receive the deposit early next week,” she said.
Besides, the drop in demand for the US dollar after successfully making oil payments should also support recovery of the rupee next week.
She said that US dollar supply remained limited in the inter-bank market since exporters had stopped selling the foreign currency while waiting for clarity about the IMF loan programme.
“Exporters had taken a hit two weeks ago when they sold dollars after Saudi Arabia announced an assistance package of $4.2 billion for Pakistan and expectations grew about the resumption of IMF’s $6 billion loan programme,” she said.
The developments supported the rupee’s recovery and it appreciated to Rs169.97 by November 3 after hitting the previous all-time low of Rs175.27 on October 26, she recalled.
Moreover, the SBP has adopted the policy of not intervening (supplying dollars) in the inter-bank market and letting market forces determine the rupee-dollar parity keeping in view the demand and supply positions.
“An improvement of $126 million in SBP’s foreign exchange reserves to $17.32 billion, as per the latest update, suggests that the central bank has not intervened in the inter-bank market,” Tawfik said.
She hoped that Pakistan and the IMF would announce an agreement for the resumption of loan programme sometime next week. The programme has been on hold since June.
“The resumption of the programme is expected to support appreciation of rupee back to Rs169-170,” she said.
Reports suggest that Pakistan has fulfilled almost all IMF conditions to resume the programme. However, the two sides are yet to reach a middle ground over the condition of making the State Bank of Pakistan (SBP) an autonomous institution, she recalled.
The government has informed IMF that it lacked two-third majority in the parliament to get the SBP autonomy bill approved, she added.
She projected that if Pakistan continues to face persistent delay in revival of the loan programme in the ongoing moth of November, then the programme would be delayed for a couple of months in wait for next IMF board meeting. The board is scheduled to meet in December 2021 at present.
“In that case (a couple of months delay), the rupee may touch Rs180 against the greenback,” she said.
“We estimated rupee to close 2021 at around Rs170-171.”
Published in The Express Tribune, November 13th, 2021.
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