After a day’s pause, Pakistani currency resumed its slide on Friday as it hit a new three-month low at Rs295.78 against the US dollar in the inter-bank market.
Now, the rupee is just around Rs3 away from the record low of Rs299/$.
According to the State Bank of Pakistan (SBP)’s data, the currency depreciated 0.29%, or Rs0.86, to Rs295.78 against the greenback.
It apparently weakened owing to strengthening of the US dollar to a two-month high globally and a likely uptick in demand for the greenback in Pakistan for growing import payments.
Otherwise, an improvement in the country’s foreign currency reserves on a week-on-week basis and a drop in oil prices in the world market would have lent support to the rupee.
The foreign exchange reserves, held by the SBP, slightly improved by $12 million to $8.05 billion in the week ended on August 11, 2023.
The currency had closed unchanged at Rs294.92/$ on Thursday after losing slightly over 2% in the prior two days under the new leadership of a caretaker government.
In the open market too, the currency decreased 0.33%, or Rs1, to Rs302/$. This signals that the difference between exchange rates in the inter-bank and open markets remained higher than the 1.25% gap recommended by the IMF under its new $3 billion loan programme.
The US dollar appreciated to a two-month high against its peers in the international market after the US central bank hinted at a further hike in interest rate.
Moreover, the reopening of imports by Pakistan’s government indicated that demand for the US dollar would remain elevated in the coming months.
REER rises
The Real Effective Exchange Rate (REER) – the value of Pakistani currency against a basket of currencies of its trading partners – appreciated to a six-month high at 91.58 in July from 87.72 in the prior month.
The improvement shows that the rupee strengthened in July, recovering from significantly weak levels in June after foreign exchange reserves increased in the wake of receipt of an IMF loan tranche and fresh deposits from friendly countries, totaling $4.2 billion. The central bank kept REER around 95-96 in the past when the reserves provided three months of import cover in mid-2022 compared to the two-month import cover now.
Data shows a further room for appreciation of the rupee, subject to the supply of the US dollar surpassing its demand in the national economy.
Published in The Express Tribune, August 19th, 2023.
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