The absence of US dollar inflows has kept on hitting Pakistani currency hard, sending it to a new historic low above Rs307 to the greenback in the inter-bank market on Tuesday.
According to the State Bank of Pakistan (SBP), the rupee dropped 0.48%, or Rs1.46, to the all-time low at Rs307.10 against the dollar.
In the open market, however, the currency recovered 1.55%, or Rs5, to Rs323/$ in the wake of a crackdown on currency smugglers in areas bordering Afghanistan, according to the Exchange Companies Association of Pakistan (ECAP).
The partial recovery in the retail market encouraged the gold pricing committee to revise the precious metal’s price down by 2.63%, or Rs6,300, to Rs232,800 per tola (11.66 grams).
In comments to The Express Tribune, Topline Securities CEO Muhammad Sohail said “Pakistani rupee is falling (in the inter-bank market) in the absence of immediate dollar inflows.”
It was happening at a crucial time when “the government has to meet the IMF’s September-end conditions of NFA (net foreign assets) and foreign exchange reserves,” he pointed out.
Earlier, Pakistan received a total of $4.2 billion from the IMF and friendly countries like Saudi Arabia and the United Arab Emirates in June and July 2023 after the fund agreed on a new $3 billion loan programme in late June.
Since then, however, the expected financing from multilateral and bilateral creditors has not arrived, contrary to assumption that they would unlock billions of dollars in assistance as soon as the IMF programme is revived.
In mid-July, Pakistan’s foreign exchange reserves spiked to $8.72 billion, driven by IMF financing and deposits made by friendly nations. Later, the current account deficit for July compared to a surplus in the prior four consecutive months caused depletion of the reserves to $7.85 billion, piling pressure on the rupee.
The currency has cumulatively lost over 6% of its value, or Rs18.61, in the inter-bank market since the caretaker government came to power in mid-August 2023.
ECAP General Secretary Zafar Paracha said that the rupee recovered substantially in the open market in the wake of a government crackdown on currency smugglers in Peshawar the other day.
“Reports suggest that two major Hawala-Hundi network operators have gone into hiding after the crackdown, helping Pakistani rupee to recover.”
He, however, lodged a complaint with the State Bank of Pakistan (SBP) that policemen in plain clothes had forcefully interrupted work at exchange companies in Gujranwala. He termed the act a violation of laws that badly impacted the business at those branches.
“A policeman came at an exchange company branch in Gujranwala, without any authority letter, and said that under instructions of the Special Branch, SP, Gujranwala, I would sit here and examine dollar sales and customers for the entire day.”
Pakistan Saraf Gems and Jewellers Association member Abdullah Abdul Razzak said that the rupee’s recovery in the open market was the primary factor for correction in gold prices in the local market.
Also, he said, the drop in gold prices was partially caused by the downward trend in the international market where the metal shed $9 to $1,931 per ounce (31.10 grams).
Published in The Express Tribune, September 6th, 2023.
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