Rupee dips to six-week low

Yield on Pakistan’s Sukuk rises to 98.96%, fanning default fears

KARACHI:

Weighed down by weak economic fundamentals, Pakistani rupee dipped to a six-week low at Rs223.17 to a dollar in the inter-bank market on Friday as importers were unsure whether the flow of the greenback would improve in the near future.

Apart from the currency’s fall, the yield on Pakistan’s global Sukuk, maturing next month, rose by 568 basis points to 98.96%, reinforcing a perception that the country might default on the Sukuk worth $1 billion.

The downtick in the rupee continued for the sixth consecutive working day, as the currency dropped by 0.22% (or Rs0.50) to close at Rs223.17, according to the State Bank of Pakistan (SBP). It has cumulatively lost 0.79% (or Rs1.75) in the six days.

Although the drop was insignificant, “weak economic fundamentals have resulted in its (rupee) fluctuation”, Ismail Iqbal Securities Head of Research Fahad Rauf told The Express Tribune.

It came in the backdrop of a “fall in Pakistan’s textile exports that hit a 17-month low at $1.35 billion in October”. Pakistan’s textile sector alone earns around 60% of the total export proceeds.

Overall, export earnings and workers’ remittances are expected to stay low in November after registering a decline in October, he said. “The development may mount pressure on the rupee.” Rauf was of the view that the rupee had remained under pressure in the face of persistent delay in ninth review of the International Monetary Fund’s (IMF) $6.5 billion loan programme, outflow of $1 billion from the foreign currency reserves a week ago and postponement of Saudi crown prince’s visit to Pakistan.

The crown prince had been expected to make a landmark announcement about investment of $10 billion in Pakistan.

Rauf believed that the rupee would continue to move in a narrow band of 220-230 against the greenback in the current cycle.

“It will get stabilised around current levels if Pakistan receives the expected inflows from the IMF and World Bank (in December and January). However, further delay in realisation of the receipts can pull the rupee down to Rs240-250.”

Published in The Express Tribune, November 19^th, 2022.

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