Pakistan’s capital markets made headlines on Wednesday as the country’s domestic currency, the rupee, plummeted to a new all-time low beyond Rs290 against the US dollar. Gold prices also hit a new record high at Rs240,000 per tola amid domestic political turmoil.
According to the State Bank of Pakistan (SBP), the local currency sank 1.85% or Rs5.38 in a day to close at Rs290.22 against the greenback in the interbank market. Meanwhile, data from the Exchange Companies Association of Pakistan (ECAP) suggested the rupee has fallen 2.35%, or Rs7, to Rs297/$ at the open market. The new price is just Rs3 away from the much-anticipated rate of Rs300/$.
The rupee depreciation has piled up foreign debt without taking new external loans, making imports further expensive for Pakistan, which faced a six-decade high inflation reading at 36.4% in April 2023.
Speaking to The Express Tribune, Pak-Kuwait Investment Company (PKIC) Head of Research Samiullah Tariq explained that the rupee depreciated due to political and social unrest caused after the arrest of former Prime Minister Imran Khan.
Fresh reports suggest that the International Monetary Fund (IMF) loan programme has also been further delayed, and, without the loan, Moody’s said the risk of the country’s default on foreign debt repayment has risen.
“The recent developments have increased pressure on the rupee against the US dollar,” said Tariq. He noted that the supply of US dollars had increased in the interbank market in recent days, while demand had remained low.
Speculation that the rupee would depreciate further due to political and economic uncertainties may have caused exporters to stop selling foreign currency, while importers may have rushed to buy US dollars before the price increased. This reversal in the demand and supply position of the foreign currency in the interbank market may have contributed to the rupee’s devaluation and the surge in gold prices, he said. He hoped the political situation would improve in a day or two and help the currency stabilise around the current levels or partially recover ground against the greenback.
Gold prices in Pakistan rose by 4.30% or Rs9,900 per tola in a day, hitting a new record high of Rs240,000 per tola in local markets despite remaining unchanged at $2,031 per ounce (31.10 gram) a day ago in the world markets.
According to Abdullah Abdul Razzak, a member of the All-Pakistan Saraf Gem and Jewellers Association (APSGJA), “the latest rupee devaluation in the interbank and open markets directly impacted gold prices in Pakistan. People are investing in gold to avoid currency devaluation, especially given the current political volatility.” He added that gold has become the most preferred asset after the supply of US dollars decreased in the open market.
AA Gold Commodities Director, Adnan Agar anticipated that gold prices would reach a new record high of around $2,150 per ounce in international markets over the next couple of months due to financial crises in the US.
“The anticipated uptrend in global markets will keep the price of gold volatile in Pakistan as well,” he said.
He cautioned that the ongoing uptrend might be followed by a correction in price, and investors should remain wary. It would be better for investors if gold underwent a due correction before rallying to the anticipated new highs, as a rally without correction is unlikely to be sustainable in the short to medium run.
Published in The Express Tribune, May 11th, 2023.
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