Rupee dips to nine-day low

In line with expectations, the significant drop in inflows of worker remittances pulled Pakistani currency down by 0.31%, or Rs0.89, to a nine-day low at Rs288.49 against the US dollar in the inter-bank market on Friday.

Besides, a small dip in the country’s foreign exchange reserves, held by the State Bank of Pakistan (SBP), also put a dampener on the rupee.

The latest drop of 0.31% was the steepest in the past nine days, shaking the currency that had stabilised in the range of Rs287-288 to a dollar in recent days.

The rupee lost ground for the second consecutive working day, which took the cumulative drop to 0.35%, or Rs1.03, in the past two days, according to the SBP data.

In line with the trend in inter-bank dealings, the rupee depreciated 0.42%, or Rs1.25, to Rs296/$ in the open market, according to the Exchange Companies Association of Pakistan.

With the fresh depreciation, the difference between exchange rates in the inter-bank and open markets widened to Rs7.51, a notably higher level compared to the IMF-recommended gap of 1.25% (or Rs4 at current levels).

According to State Bank’s data, the inflow of worker remittances slumped 19% to a five-month low at $2 billion in July compared to $2.51 billion in the same month of last year.

The significant slowdown in remittances has apparently reduced the supply of foreign currencies to the inter-bank market, piling pressure on the rupee.

Low remittances weaken the country’s capacity to pay for imports and repay the maturing foreign debt. The lack of foreign currency also leads to increased borrowing, though the foreign debt has already ballooned to unsustainable levels.

Pakistan’s foreign exchange reserves decreased moderately by $110 million to $8.04 billion, signalling that the demand for dollars stood high compared to their inflow into the country.

Published in The Express Tribune, August 12^th, 2023.

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