Pakistani currency tested a new all-time low of Rs240 against the US dollar in early trading on Wednesday, but towards the end of the day the currency recovered partially and closed at Rs239.65.
The rupee lost a fresh 0.31% (or Rs0.74) on a day-to-day basis. It was just Rs0.29 away from the record low close of Rs239.94 hit on July 28, 2022.
The partial recovery suggests the currency has resisted a bigger fall and may consolidate around current levels in the short run.
Wednesday was the 14th consecutive working day when the currency depreciated without any break. With the latest drop, it has cumulatively lost 11.67% (or Rs25.05) in the past 14 days.
The rupee has maintained its downward streak in the wake of elevated demand for US dollar for import and foreign debt payments.
On the other hand, supplies of the greenback have remained limited via export proceeds and worker remittances.
The gap between higher demand and lower supply of dollar is bridged through foreign exchange reserves. The reserves have continued to deplete since January 2022 and reached critically low levels of less than six weeks of import cover at around $8 billion.
The shrinking forex reserves are not letting the currency stabilise, which is falling every passing day.
More importantly, the US dollar has continued to strengthen against a basket of global currencies since the US central bank (Fed) hinted at further hiking its benchmark interest rate to control a decades-high inflation.
Besides, flood losses in Pakistan have increased the demand for dollar for import of agricultural products including cotton. On the other hand, textile exporters fear losing orders amid high inflation in the West, which may slow down the inflow of dollars.
As a result, the rupee may continue to remain under pressure against the greenback.
Experts, however, believe the rupee should consolidate around current levels instead of maintaining its free fall.
The government should take measures to help the rupee stabilise and recover. It should announce a roadmap for sustainable economic growth and building reserves instead of only looking at friendly countries for bailout packages, they say.
The downward streak has made rupee the worst-performing currency in emerging markets. It may spark a wave of very high inflation in the country.
An emerging markets analyst said the delay in arrival of promised funds from the Gulf Cooperation Council (GCC) countries was impacting the rupee these days.
Earlier, the local currency won the title of best-performing currency in emerging markets in August 2022.
Published in The Express Tribune, September 22nd, 2022.
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