The emergence of current account deficit in July, after four consecutive months of surplus, caused further depreciation of Pakistani rupee that reached over three-month low at Rs297.13 against the US dollar in the inter-bank market on Monday.
According to State Bank of Pakistan’s (SBP) data, the rupee depreciated 0.45%, or Rs1.35, standing less than Rs2 away from the all-time low of Rs299/$ hit in mid-May.
Market talk indicates that the currency may test the Rs300/$ barrier under the current cycle of depreciation.
Chase Securities Director Research Yousuf M Farooq said that the rupee came under mounted selling pressure owing to increased demand for the US dollar to clear pending import payments.
In line with official directives, he pointed out, several traders imported goods on deferred payment for 180 to 365 days amid low foreign currency reserves over the past several months. Now, the traders “have started making those payments as they are maturing.”
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He, however, anticipated that the currency should stabilise around current levels.
In the open market, the currency dropped 0.65%, or Rs2, to Rs304 against the greenback, according to the Exchange Companies Association of Pakistan.
Accordingly, the difference between exchange rates in the inter-bank and open markets stood widened at over 2.5% (or Rs7) compared to the International Monetary Fund (IMF)-recommended level of 1.25% (around Rs4), breaching the fund’s condition and putting a question mark over the current $3 billion loan programme.
The global lender has asked Pakistan that the difference between exchange rates should not widen beyond 1.25% in any of the five consecutive trading sessions.
The rupee has dropped almost 3%, or Rs8.64, in the inter-bank market in the first few days of the caretaker government, proving true market speculation about a fresh round of depreciation during the interim setup.
Gold up
The rupee’s fresh devaluation encouraged the gold pricing body to increase the precious metal’s price by Rs3,100 to Rs229,900 per tola (11.66 grams).
Bullion also got support from an uptick in the international market where gold gained $2 at $1,981 per ounce.
Published in The Express Tribune, August 22nd, 2023.
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