Rupee extends losing streak on unaltered policy

Loses Rs0.90 to reach Rs287.54 against US dollar in the interbank market

KARACHI:

The Pakistani currency experienced a 0.31% drop, losing Rs0.90 to reach Rs287.54 against the US dollar in the interbank market on Tuesday. This marks the second consecutive working day of decline following the latest monetary policy statement.

The central bank opted to leave its key policy rate unchanged at 22% for the next six weeks, which was considered a neutral event for the interbank market. Some financial analysts had anticipated an increase in the rate, which would have potentially strengthened the rupee against the dollar. However, without such an increase, the downward trend in the currency’s value has continued.

Moreover, the central bank has extended the deadline for commercial banks to purchase US dollars from the interbank market until December 31, 2023. This measure was taken to facilitate the settlement of international payments made by credit cards on behalf of their clients. Previously, banks were buying $10-20 million per day from the open market for this purpose.

In the past two days alone, the currency has cumulatively lost 0.38% or Rs1.09 in the interbank market, according to the State Bank of Pakistan (SBP). This contrasts with moderate gains recorded in the market on Wednesday and Thursday of the previous week.

The open market saw the currency remain steady against the greenback at Rs291 on Tuesday, as per the Exchange Companies Association of Pakistan (ECAP). Consequently, the difference in exchange rates between the interbank and open markets narrowed down to Rs3.46, well in line with the International Monetary Fund’s (IMF) recommendation for a maximum spread at 1.25%.

Market experts suggest that the domestic currency’s weakness is attributed to increased demand for the US dollar, mainly for import payments and repayment of old maturing external debt. However, the latest monetary policy statement indicated that the growth in imports would remain moderate, suggesting that the demand for foreign currency might not be as high as speculated in the market.

This projection aligns with the anticipation that the import-driven domestic economy will experience moderate growth in the range of 2-3% in the current fiscal year 2023-24.

Published in The Express Tribune, August 2^nd, 2023.

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