In continuous free fall, rupee crosses 305 barrier

Currency hits record low vs dollar as demand from Kabul spikes

ISLAMABAD:

Pakistani currency maintained its losing streak for the eight consecutive working day on Thursday, crossing another psychological barrier of Rs305 against the US dollar in the inter-bank market amid additional demand for the greenback from neighbouring country Afghanistan.

According to the State Bank of Pakistan’s (SBP) data, the rupee lost another 0.36%, or Rs1.09, and hit a new record low at Rs305.54 against the greenback.

The downturn in the currency is widely feared to keep inflation reading elevated contrary to earlier expectations of a slowdown. This has posed a new challenge to the authorities concerned, who are scrambling to turn the economy around in the current fiscal year.

In the open market too, the local currency dropped over 1%, or Rs3.50, to a new all-time low at Rs323/$, according to the Exchange Companies Association of Pakistan (ECAP).

The currency’s free fall encouraged the gold pricing body to jack up the commodity’s price by Rs3,400 to Rs239,800 per tola (11.66 grams). With the fresh surge, the precious metal is just Rs200 away from the record high of Rs240,000 touched about four months ago in early May 2023.

Reports suggest that the currency has continued to remain under pressure due to additional demand for US dollars from Afghanistan. Pakistani authorities seem reluctant to kill the demand, though the country’s foreign currency reserves have dropped below the critical level of $8 billion.

Dealers said that Pakistani rupee was trading around Rs230-235/$ in the illicit grey market in border areas on both sides of the fence, forcing traders to pay a higher amount for the purchase of dollars from the official inter-bank and open markets.

Experts believe that Pakistani rupee has remained stuck in a vicious cycle. The inter-bank market is chasing the open market while the open market is following the grey market.

Operators of the illicit Hawala-Hundi network have continued to pay a higher price for the US dollar to attract foreign currency inflows, which they sell at a highly inflated price to importers working in the unregulated and undocumented sectors of Pakistan’s economy.

The International Monetary Fund (IMF) has asked Pakistan to keep the difference between exchange rates in inter-bank and open markets to a maximum of 1.25% in any of the five consecutive working sessions.

The gap, however, has spiked to 5.7% (or Rs17.47) at the current rupee-dollar parity.

On the other hand, gold has maintained its uptrend, taking cue from the rupee’s downturn in retail trade as people are parking their savings in the safe-haven asset to avoid the impact of currency’s devaluation.

The All Pakistan Saraf Gems and Jewellers Association reported that gold rose $7 to $1,945 per ounce (31.10 grams) in the international market.

Published in The Express Tribune, September 1^st, 2023.

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