Rupee maintains downward streak
PHOTO: FILE
Pakistani currency has maintained a downward streak on the fourth consecutive working day as it dropped by another half percentage point (or Rs1.03) on a day-to-day basis to close at Rs219.41 against the US dollar in the interbank market on Thursday.
The rupee has come under renewed pressure on a slowdown in the inflow of workers’ remittances from overseas Pakistanis. “Two leading banks have confirmed a slowdown in workers’ remittances,” a seasoned analyst told The Express Tribune on condition of anonymity.
The slowdown in remittances is seen after the cost of energy per person doubled or tripled in the US and Europe amidst fear of recession caused by a multi-decade high inflation reading.
The influx of remittances may slow down even more after the rupee depreciates further in the open market compared to the interbank market, mounting pressure on the rupee going forward.
The domestic currency depreciated to Rs228-229 against the US dollar at the open market compared to Rs219.41 in the interbank, showing a wide gap of almost Rs10 between the two markets.
On Twitter, Topline Securities CEO Muhammad Sohail urged the Pakistani government to ‘control’ the rising dollar rate.
“In the open market, the US dollar is now 4% higher than bank rate. This happened after many years. It may affect official inward remittances in Pakistan. The government and State Bank of Pakistan (SBP) should try to control this. Pakistan needs official remittances to support its weak external account,” he said.
Earlier, the Central Bank allowed currency dealers to export surplus US dollars to Dubai and Qatar, deposit the same within three days into foreign currency accounts maintained at local banks and surrender them in the inter-bank market giving rise to a shortage of foreign currency in the open market. In a recent development, the United Arab Emirates made it mandatory for Pakistani passengers to declare UAE dirhams (AED) 5,000 at their arrival at all Emirati airports resulting in further shortage of foreign currency in the country’s open market.
Amidst fears of recession, depreciation of the Euro against the US dollar also raises alarms as Europe is a big player in Pakistan’s already dwindling export market.
Read Rupee continues to lose strength against dollar
Petroleum crude oil climbing to over $100 per barrel and Pakistan’s current-account deficit reaching $1.21 billion in July also played a critical role in pulling down the rupee.
The rupee had closed at Rs218.38 against the greenback on Wednesday, according to the SBP.
With the latest day-to-day drop, the rupee has plummeted 2.20% (or Rs4.76) in the past four working days to Rs219.41 on Thursday compared to Friday’s close at Rs214.65.
As Pakistan relies heavily on imported energy, the increase in global crude oil price also impacted the rupee, while the share of energy stood at 25% in imports totalled at $80 billion in the previous fiscal year ended June 30, 2022.
An expert said a section of analysts were expecting the balance of the current account nominally in surplus or mildly in deficit in July. The deficit of $1.21 billion in July, however, has impacted the rupee in the interbank market.
Real Effective Exchange Rate (REER)
The Real Effective Exchange Rate (REER) – the value of the rupee against basket of trading partners’ currencies – depreciated to a two-year low at 93.16 on the index in July, down from 93.98 in June this year, the Central Bank reported on Wednesday.
Earlier, the Central Bank maintained REER at 96-97 on the index when foreign currency reserves were available at two to three-month import cover. The reserves have a below six-week import cover of $7.89 billion which is a critically low level.
A further reduction in REER may also raise the price of imports and increase the rate of inflation in the country.
Published in The Express Tribune, August 26th, 2022.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.