In line with market expectations, Pakistani currency continued to dive for the second consecutive working day of the caretaker government, sliding 1.16%, or Rs3.42, to a new three-month low at Rs294.93 against the US dollar in the inter-bank market on Wednesday.
The currency has registered a cumulative loss of 2.19% in the past two days and is just Rs4 away from the all-time low of Rs299/$, showed the central bank data.
According to the Exchange Companies Association of Pakistan (ECAP), the currency depreciated by 0.83%, or Rs2.50, to Rs302.50/$ in the open market.
Market talk, however, indicated that the exchange rate ended in the range of Rs305-310/$ in the retail market, which showed a significantly steeper drop than the one reported by ECAP.
The notable decline in retail trading suggested that individual currency investors had returned to the market to park their savings in foreign currency in an attempt to avoid the impact of further rupee depreciation, which will eat into their savings.
With the latest depreciation, the difference between exchange rates in the inter-bank and open markets remained widened at over 2.5% compared to the International Monetary Fund’s (IMF) recommended ceiling of 1.25%.
It proved recent speculations true that suggested that the rupee would come under a fresh round of depreciation, which had been due for some time, during the caretaker government.
Earlier, the Pakistan Democratic Movement (PDM) government artificially kept the currency stable around Rs288/$ to save its political capital and left the job to be done during the interim setup.
The rupee has maintained its downturn despite some decline in petroleum prices in the international market owing to a weak global economic outlook, particularly for the world’s second largest economy China.
Pak-Kuwait Investment Company Head of Research Samiullah Tariq commented that the reopening of imports had mounted pressure on the rupee.
“Demand for the US dollar has remained high to clear import backlog after the government lifted restrictions on imports to revive economic activities,” he said.
This one-off extra demand for the dollar to clear pent-up demand has piled pressure on the rupee.
Tariq, however, aired hope that the currency should settle in the range of Rs290-295/$ immediately as he did not see further depreciation. “The currency should remain stable in a range (of Rs290-295/$) over the next three to four months.”
On Tuesday, the rupee emerged as the worst performing currency in Asia in the wake of strengthening of the greenback globally and a surge in its demand in Pakistan.
Topline Research reported that all 12 currencies in the MSCI Asia Emerging and Frontier Markets Index lost value ranging from 0.1% to 1% against the US dollar, but Pakistani and Malaysian currencies fell the most by 1% each.
Among all these currencies, Pakistani rupee registered the largest decline of 26.6% in the past one year and the steepest drop of 22.3% in the first eight months of 2023.
Gold at 3-week high
Taking cue from the rapid depreciation of the rupee, gold hit a three-week high at Rs223,800 per tola (11.66 grams) on Wednesday.
The All Pakistan Saraf Gems and Jewellers Association reported that it had revised the precious metal’s price upwards by Rs900 to Rs223,800 per tola.
Bullion became more expensive partially because of uptick in the international market, where gold rose $2 to $1,905 per ounce (31.10 grams). The nominal gains came as traders preferred to invest mainly in the strengthening US dollar in the world market.
Published in The Express Tribune, August 17th, 2023.
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