Rupee’s free fall continues as it hits new low at 302

Pakistani rupee becomes worst performing among 12 currencies in MSCI index

KARACHI:

Pakistani rupee continued to remain on a record-breaking downward spree for the fifth consecutive working day on Monday as it fell 0.33%, or Rs1, to a new all-time low at Rs302 against the US dollar in the inter-bank market.

According to the State Bank of Pakistan’s (SBP) data, the rupee has depreciated by 4.47%, or Rs13.51, in the first two weeks of the caretaker government amid growing economic, social and political uncertainty in the country.

Market talk suggests that importers continued to pay a higher price for purchasing US dollars in the backdrop of surging inflation and on expectation of another increase in the cost of bank borrowing in the next monetary policy meeting in mid-September or earlier.

Besides, the rising dollar demand to finance the country’s current account deficit, repay the maturing foreign debt and bear the interest cost of debt also piled pressure on the rupee.

Topline Securities’ data indicated that the US dollar continued to strengthen against most Asian currencies. Pakistani rupee was the worst-performing currency among 12 currencies in the MSCI emerging and frontier markets index, losing 23.3% last year and 25% in the first eight months of 2023.

Out of the 12 currencies, eight dropped in the range of 0.1% to 0.5% on a day-to-day basis, which included the rupee as well that lost 0.3%.

Among others, two ticked up by 0.1% and another two ended unchanged in the index, which featured China, India, Bangladesh, Malaysia, Indonesia, Sri Lanka and others. In the open market, the rupee dropped 0.32%, or Rs1, to a new record low at Rs315 against the greenback, according to the Exchange Companies Association of Pakistan (ECAP). Accordingly, the difference between exchange rates in the two markets remained elevated at over 4% (or Rs13) compared to the International Monetary Fund (IMF)’s recommended level of 1.25% (slightly over Rs4 at the current rupee-dollar parity).

The latest drop in the currency came after Pakistan’s central bank reported that the country’s foreign exchange reserves further decreased by $125 million, slipping below the $8 billion mark to $7.93 billion.

Published in The Express Tribune, August 29^th, 2023.

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