Witnessing a freefall of 6.66% (or almost Rs19), the Pakistani currency plunged to hit a new all-time low closing at Rs285.09 against the US dollar in the interbank market on Thursday.
Former advisor to the Ministry of Finance Dr Khaqan Najeeb observed that,“The rupee’s re-pricing has matched its value to the one in the black market.”
To appease the International Monetary Fund (IMF) by reinstating a true market-based value for the rupee, and in an attempt to end or narrow the gap between the two markets, the domestic currency market underwent massive jolts throughout the day, creating new history towards the end.
Exchange Companies Association of Pakistan (ECAP) Secretary General Zafar Paracha had said earlier that the domestic currency was available at Rs286/$ in the black market in Pakistan and at Rs295/$ in Afghanistan.
After January 2023, when the rupee took the single largest dive of Rs24.5, this slump is the second largest dip – of almost Rs19 – in the currency’s history. This was also the sixth record-low drop in percentage term at 6.66% in the day, reported Ismail Iqbal Securities (IIS).
IIS Head of Research Fahad Rauf said, “Unless foreign exchange reserves improve, it will be very difficult to anticipate where the rupee will settle before the IMF programme is revived. The rupee will remain volatile in the near term.”
He added that the delay in unlocking the IMF’s approval is impacting the rupee-dollar exchange rate.
The domestic currency has dropped by a cumulative net 19% (or Rs54) to date compared to the time when the government first ended its control over the rupee-dollar exchange rate some five weeks ago on January 25, 2023.
With the rupee recovering by 6.5% to a one-month high at Rs259.92/$, despite the wide gap between the demand and supply of dollars, and the reorganisation of the black currency market, the IMF was clued in that the government was still maintaining control over the rupee.
Topline Securities CEO Mohammad Sohail said,“A delay in IMF funding is creating uncertainty in the currency market.” The currency has continued to record a significant drop on the second consecutive day on Thursday since the government reinstated the market-based exchange rate on the directives of the IMF. On Wednesday, it had lost 1.73% (or Rs4.61) to close at Rs266.11/$.
The currency hit a record low on Thursday morning as exporters withheld selling the greenback in wait for a higher price and importers rushed to buy the dollars.
The currency had hit a precious record low of Rs276.58/$ about a month ago on February 3, 2023.
The devaluation was seen on directives of the IMF to win back its $6.5 billion loan programme and unlock another couple of billion dollars from other multilateral and bilateral creditors this fiscal year. “The rupee will remain volatile until the country’s reserves build up,” said the IIS research head, adding that he hoped that the reserves would grow to $6-7 billion by end of June 2023.
Rauf explained that the rupee’s devaluation has convinced exporters and overseas Pakistanis to send their funds through official banking channels. “Banks have reported an improvement in the inflow of export earnings and workers’ remittances,” he said.
“Pakistan may attract foreign investment in rupee-denominated sovereign debt securities like T-bills and Pakistan Investment Bonds (PIBs) after the central bank hiked its policy rate by 300 basis points to 20% and the rupee hit all-time low on Thursday. The inflow of hot money may also help build our reserves and extend their support to the rupee against the greenback in the near future,” he said.
The freefall in the rupee, however, forced the local gold pricing committee to increase the price of its commodity by a staggering Rs9,400 per tola (11.66 gram) to Rs206,500 in Pakistan on Thursday.
A surge in the price of the yellow metal has been recorded despite it inching down by $1 per ounce (31.10) to $1,836 in the global market.
The steep depreciation in the rupee-dollar exchange rate influenced the re-pricing of gold in Pakistan. As the country does not produce the commodity locally, and instead imports it to meet local demand, the price is pegged to the value of the rupee against the dollar. Gold hit an all-time high at Rs210,500 per tola in recent weeks after the rupee maintained a downward trend.
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