Rupee continues to slide as FX reserves decline

The Pakistani currency faced further depreciation for the third consecutive working day, with the rupee sliding by 0.07% or Rs0.20 against the US dollar in the interbank market, reaching Rs285.82 on Friday. This decline comes as a result of reduced supplies of foreign currency, which has put pressure on the rupee.

In the open market, the domestic currency witnessed a larger drop of 0.66% or Rs2, falling to Rs301 against the greenback, as reported by the Exchange Companies Association of Pakistan.

The State Bank of Pakistan (SBP) released its latest weekly update on Thursday, revealing a decrease of $71.5 million in foreign exchange reserves, which now stand at $4.31 billion for the week ending May 12, 2023. This marks the third consecutive week of declining reserves.

In the open market, it is believed that the larger drop in currency value is a result of reduced supplies on exchange companies’ counters, driven by uncertainties surrounding politics and the IMF programme, as well as increased demand for foreign currencies ahead of Hajj.

Speaking to The Express Tribune, Sana Tawfik, an economist at Arif Habib Limited, downplayed the significance of the rupee’s decline in the interbank market, predicting that it will remain range-bound around the current level until the end of June 2023. Tawfik suggested that the government would continue to control imports through administrative measures to manage the limited availability of foreign exchange reserves and mitigate the risk of defaulting on foreign debt repayment.

Published in The Express Tribune, May 20^th, 2023.

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