Rupee at Rs279/$ as IMF review looms

Latest drop suggests demand for US dollar has slightly exceeded supply

KARACHI:

Ahead of the upcoming International Monetary Fund (IMF) economic review, the Pakistani rupee weakened slightly to close above Rs279 against the US dollar in the interbank market. This depreciation is attributed to the increased demand for foreign currency to cover imports and repay maturing foreign debt.

Data from the State Bank of Pakistan (SBP) indicates that the local currency fell by Rs0.32, or 0.11%, to reach Rs279.12 against the US dollar on Monday. Over the past week, the rupee’s exchange rate has been fluctuating around this level, according to market sources.

This currency fluctuation is seen as a precursor to the IMF’s first review of the domestic economy under its ongoing $3 billion loan programme in November 2023.

Previously, the rupee had witnessed a remarkable recovery, strengthening by over 11% or Rs30 in the past six weeks, reaching a three-month high at Rs276.83/$. It had hit a record low of Rs307.10/$ on September 5, 2023.

In the open market, the rupee also dipped, losing 0.18% or Rs0.50 against the US dollar on a daily basis, as reported by the Exchange Companies Association of Pakistan (ECAP).

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Recent developments indicate that the supply of foreign currency has outpaced demand in recent days, although the latest pressure on the rupee suggests that demand has slightly exceeded supply. Rising global prices of petroleum products and gold have contributed to increased import costs for Pakistan.

Foreign currency supplies had improved due to a significant reduction in imports, increased worker remittances from overseas Pakistanis, a rise in foreign direct investment (FDI), and an uptick in export earnings in September, according to the central bank’s last week report.

As a result, the current account deficit decreased to just $8 million in September, and the country’s foreign exchange reserves, held by the SBP, increased by $67 million, reaching $7.71 billion by the week ending on October 13, 2023. This bolstered the rupee against the US dollar and other foreign currencies.

Meanwhile, local gold prices increased by Rs1,250 to reach Rs209,600 per tola (11.66 grams) in Pakistan on Monday. This hike is attributed to rupee depreciation and a $9 increase in the international gold price to $2,001 per ounce.

Published in The Express Tribune, October 24^th, 2023.

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