Rupee depreciates for 2nd day, reserves jump

Currency sheds value in backdrop of ongoing IMF loan talks

Our Correspondent May 17, 2024
The market has once again won and forced the SBP to fall in line. PHOTO: FILE


Pakistani currency dropped Rs0.14 to a new two-week low at Rs278.40 against the US dollar in the inter-bank market, maintaining its downward trend for the second consecutive working day amid ongoing talks for a new loan programme potentially by June or July 2024.

According to the State Bank of Pakistan (SBP)’s data, the rupee had closed at Rs278.26 against the greenback on Wednesday. The currency has lost a net 0.50%, or Rs1.37, in the past six weeks compared to the five-and-a-half-month high close at Rs277.03/$ in the last week of March 2024.

Prior to that, the currency gained 10.85%, or Rs30.07, over a period of six and a half months and reached Rs277.03/$.

Talking to The Express Tribune, an analyst said the International Monetary Fund (IMF)’s recommendation to liberalise imports and make rupee-dollar parity the first line of defence against shocks in the external economy was causing the latest, gradual depreciation of the local currency.

He said the IMF’s recommendation had changed market sentiment for the rupee to slightly negative since Pakistan was engaged in negotiations with the lender.

Otherwise, the fundamentals for the rupee-dollar parity have remained unchanged. There is no pickup in demand for dollars to make import payments, the current account deficit has continued to contract and international oil prices are on a downward trajectory.

Read SBP receives first tranche of $1.2b from IMF

He anticipated that the currency would remain stable at least in the short run. However, in case the gradual deprecation continued, the rupee may reach Rs285/$ by the end of June 2024.

Meanwhile. Pakistan’s foreign exchange reserves, held by the SBP, hit a two-year high at $9.13 billion in the week ended May 10, 2024, widening the country’s import cover to slightly less than two months.

The central bank reported on Thursday that its foreign currency reserves increased by $15 million in one week.

The improvement came apparently in the wake of central bank’s strategy to absorb the surplus greenback from the currency market. The bank has reportedly bought $5-5.5 billion so far in the current fiscal year.

The reserves held by commercial banks increased $152.3 million in the week under review, rising to $5.49 billion. Resultantly, Pakistan’s total reserves rose $167.5 million to $14.63 billion, the central bank said.

Published in The Express Tribune, May 17th, 2024.

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