Rupee just Rs2.03 away from all-time low

Continually drop despite Saudi Arabia depositing $3 billion, global oil prices falling

KARACHI:

Pakistani currency and US dollar-denominated international bonds failed to win traders’ confidence as their prices continued to fall despite Saudi Arabia depositing $3 billion and sharply dropping oil prices in the global markets, suggesting the risk of default is yet to go away.

The domestic currency has continued to freefall against the greenback for twelve consecutive working days. On Monday, the rupee fell by 0.45% (or Rs1.07) to close at a six-week low at Rs237.91 against the US dollar in the inter-bank market.

The currency has slumped by 10.86% (or Rs23.31) in the past 12 working days to date compared to Rs214.60 on August 1, 2022. It is just Rs2.03 away from an all-time low hit at $239.94 on July 28, 2022.

At the open market, the rupee dropped to Rs245 against the greenback compared to Rs241 on Friday.

On the other hand, Pakistan’s US dollar-denominated bonds, available for trade in the global markets, have continued to lose price and their yields are on the rise. The dwindling bond prices and rising yields signal that Pakistan’s risk of default on international payments (import payments and foreign debt repayments) are yet to be fully mitigated.

After a brief recovery, the yield of the 5-year Third Pakistan International Sukuk has spiked to 39% again compared to less than 10% on usual days. The yield of the bond shot up to around 50% in the days when the IMF executive board approved the $6.5 billion loan programme for Pakistan on August 29, 2022.

The $1 billion bond is maturing on December 5, 2022. Finance Minister Miftah Ismail, however, remained confident that Pakistan would pay off the debt on time despite new challenges that emerged including the flooding.

“The path to stability was narrow, given the challenging environment, and it has become narrower still,” Finance Minister Miftah Ismail was quoted telling Reuters at his office. “But if we continue to take prudent decisions - and we will - then we’re not going to default. Absolutely not.”

While speaking to The Express Tribune, Tahir Abbas Head of Research at Arif Habib Limited said, “The fall in the rupee, and the rise in bond yields, is seen partially due to the US dollar strengthening against other global currencies and monetary policy tightening by the US and European central banks.” Besides high political uncertainty, flood-related losses to the masses and in the economy have also dented investors’ confidence in the rupee and Pakistan’s global bonds, he said.

Published in The Express Tribune, September 20^th, 2022.

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