Pakistani currency failed to win support against the US dollar and weakened to a new record level, as it plunged 0.6% (or Rs1.13) to an all-time low of Rs188.66 against the greenback in the inter-bank market on Tuesday.
The weakening rupee, however, caused gold to shoot up Rs1,400 to an all-time high at Rs134,400 per tola (11.66 grams) in Pakistan.
The rupee closed at Rs187.53 in the interbank market on Monday, according to the central bank.
The rupee was down because of two major reasons, Topline Securities CEO Muhammad Sohail said while talking to The Express Tribune. “First, due to the delay in the International Monetary Fund (IMF) loan programme. Second, the US dollar is getting stronger against most of currencies worldwide,” he said.
Reports suggest Pakistan’s economic team, under the leadership of Finance Minister Miftah Ismail, is scheduled to meet IMF officials in Doha on May 18.
Earlier, the IMF team was scheduled to arrive in Pakistan on May 10 to conduct the seventh review of the economy under the ongoing loan programme worth $6 billion. The government claimed that the amount of loan has been enhanced to $8 billion, while the timeline for completion of the programme has been extended by one year till September 2023.
The delay in resumption of the programme has ceased the flow of foreign currencies into Pakistan, including from friendly countries like Saudi Arabia and the United Arab Emirates.
Accordingly, the country’s foreign exchange reserves have depleted to a critical level and mounted pressure on the rupee. The IMF programme has been delayed due to almost no progress on the pre-set conditions for the resumption of the programme, which has been on hold since June 2021.
Earlier in late April, the IMF asked Pakistan to withdraw subsidies on petroleum products and electricity to resume the loan programme, as the subsidies were consuming over Rs90 billion a month, which the cash-strapped country could not afford.
The PML-N coalition government is most likely to start withdrawing subsidies (gradually) on energy products for the end-consumers ahead of talks with the IMF in Doha on May 18.
Withdrawal of the subsidies, however, is anticipated to take the inflation reading to a multi-year high at around 15% from around 13.37% recorded in the previous month of April. “We do not foresee the rupee losing its value excessively on the assumption that Pakistan will win the IMF approval soon,” Sohail said.
He said that the rupee was also losing ground due to the strengthening of the US dollar against world’s major currencies, including Pakistan.
The dollar started regaining strength when the US central bank aggressively revised up its key policy rate by 0.5% to a two-decade high earlier in May. The forward guidance suggests that the world’s largest economy would increase the rate by another one percentage point in the next two monetary policy meetings in a few months.
Thus, the greenback would continue to gain strength against currencies around the world, including Pakistan.
The rupee partially recovered to Rs181 against the US dollar after the PML-N formed the coalition government during the first half of April as compared to the previous all-time low of Rs188.18 recorded on April 7, in the wake of political instability.
Gold shines
The drop in the rupee value pushed the gold trading body to revise up the bullion price significantly by Rs1,400 to Rs134,400 per tola, as “Pakistan meets local demand for the precious yellow metal through imports”, All Sindh Saraf and Jewellers Association’s (ASSJA) member Abdullah Abdul Razzaq Chand said.
Gold remains a safe haven against inflation (rupee depreciation and increase in essential commodity prices), he said, adding “people invest in gold to avoid the impact of devaluation of the local currency”. The gold price has cumulatively increased by Rs2,500 per tola in recent days as compared to around Rs132,000 per tola before Eid holidays – in the first week of the current month of May.
“The gold price will continue to hover at a high level along with the depreciating rupee,” he said.
He speculated that most investors were taking positions in gold these days, while purchasing power of genuine buyers has “eroded next to nil”.
“Most of the people are buying pure gold in bar forms, while the manufacturing and sales of jewellery have dropped next to nil in Pakistan despite the peak season for wedding in the country,” he said.
Published in The Express Tribune, May 11th, 2022.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.
1725877703-0/Tribune-Pic-(5)1725877703-0-165x106.webp "article")
COMMENTS (2)
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ