Business

Rupee slumps to lowest in three weeks

Depreciates Rs3.78 as dollar demand stays high

Our Correspondent July 19, 2023

Exchange Companies Association president anticipated that the rupee would partially recoup losses over the next couple of days on expectations of easing political tensions. Photo: afp

ISLAMABAD:

Pakistani currency on Tuesday slumped 1.34%, or Rs3.78, and reached its lowest in three weeks at Rs283.04 against the US dollar in the inter-bank market, maintaining the losing streak for the third straight day owing to rising demand for the greenback.

The rupee dived in the backdrop of speculation that the black market had started gaining strength again where Hawala and Hundi operators were paying a significantly higher price for the US dollar compared to the ones prevailing in inter-bank and open markets.

In the open market, the rupee fell 1.37%, or Rs4, to Rs290/$. With this, the difference between exchange rates in the two markets widened to Rs7 compared to the acceptable level of Rs4.

Ismail Iqbal Securities Head of Research Fahad Rauf said that according to the IMF’s structural benchmark, the “average premium between inter-bank and open market rates will be no more than 1.25% during any consecutive five business day period.” That (difference/ premium) came to about Rs4 at the current rupee-dollar exchange rate, he calculated.

In June, the gap had widened to a record high of Rs27, but shrank to only Rs3 after the rupee recovered massively in retail dealings.

The currency weakened the day the State Bank unveiled current account data for June that showed a surplus for the fourth consecutive month at $334 million and China rolled over a $600 million loan.

Though both developments were positive, the currency maintained its downturn towards the projected value of Rs290/$ in the inter-bank market by the end of December 2023. Market talk suggested that importers continued to pay a higher price for dollar purchase to clear the backlog created by import restrictions.

The central bank’s data on the Real Effective Exchange Rate (REER) suggested that the currency remained undervalued with big room for a significant recovery.

REER appreciated to 87.7 in June 2023 compared to 87.3 in May 2023, according to the SBP. It has continued to appreciate over the past couple of months but remains far from the fair level of 95-106.

The rupee’s devaluation encouraged the gold pricing body to jack up the metal’s price by almost 3%, or Rs6,200, to Rs221,000 per tola (11.66 grams). The All Pakistan Saraf Gems and Jewellers Association has frequently increased the gold price, making bullion a lucrative asset. In the international market, gold surged $10 to $1,967 per ounce (31.10 grams), according to the association.

Published in The Express Tribune, July 19^th, 2023.

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