Rupee plunges 1.3% to new record low at Rs236.02

Shrinking forex reserves, delay in IMF loan mount pressure on currency

KARACHI:

Pakistani currency continued to slide along with depleting foreign exchange reserves, as it plunged by a fresh 1.31% (or Rs3.13) to a new historic low at Rs236.02 against the US dollar in the inter-bank market on Wednesday.

It had closed at Rs232.93 against the greenback on Tuesday, according to Pakistan’s central bank.

With the latest day-to-day drop, the rupee has cumulatively plunged almost 12% (or Rs25.07) in the past nine consecutive working days.

JS Global Head of Research Amreen Soorani said Pakistan’s foreign exchange reserves had depleted to mere six to seven weeks of import cover at $9.3 billion.

On the other hand, the International Monetary Fund’s (IMF) loan disbursement is at a distance of at least four weeks, as its executive board meeting is scheduled for the last week of August. Till then, the country has to manage import payments and foreign debt repayments with the limited forex reserves, she said.

“The situation is mounting pressure on the rupee. In addition to this, political noise is also a concern for the market,” she said.

Under the market-based exchange-rate mechanism, the value of the rupee against the US dollar is determined by market forces. Its movement depends on the demand and supply of dollar in the market.

Therefore, import payments and debt obligations have continued to trim the forex reserves amid a temporary pause in new foreign financing. In other words, the dollar supply has continued to shrink while demand has remained intact.

“It is difficult to project where the rupee will bottom out in the unprecedented situation,” she said.

Pakistan has faced a similar situation in the past as well where the country was left with a mere six to seven weeks of import cover. But in those times there was clarity on how much inflows would come and at what time.

This time around, however, there is little uncertainty over the timing and volume of inflows. Finance Minister Miftah Ismail has reiterated that Pakistan will receive notable inflows from the multilateral and bilateral lenders and friendly countries.

“However, the market may not be buying the argument.” “It is difficult to quantify where the rupee will settle down under the current downward streak amid political noise, speculation and poor sentiment,” she added.

Published in The Express Tribune, July 28^th, 2022.

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