Rupee dips to nearly 2-1/2-month low

Pakistani currency on Thursday hit almost two-and-a-half-month low at Rs278.50 against the US dollar in the inter-bank market, as the country’s foreign exchange reserves receded from a 10-month high but stood above $9 billion.

According to the State Bank of Pakistan (SBP)’s data, the rupee ticked down Rs0.10 on a day-on-day basis compared to Wednesday’s close at Rs278.40 against the greenback. The drop came on the back of apparent increase in demand for the foreign currency and slowdown in its supply, which was also reflected in the decrease in the SBP’s forex reserves.

The central bank reported that the reserves fell $63 million to $9.09 billion in the week ended May 24, 2024 “due to external debt repayments”.

Market talk suggests foreign companies operating in Pakistan are now freely sending profits and dividends to their headquarters overseas, creating additional demand for the greenback.

The demand for dollars for imports of goods and services is expected to pick up pace ahead of the budget presentation on June 7 for the next fiscal year. Traders usually import goods in advance to avoid the imposition of new taxes in the budget effective from July 1. Moreover, market speculation indicates that the rupee has become overvalued and some devaluation cannot be ruled out before the government is able to win a new IMF loan programme.

Meanwhile, the foreign exchange reserves held by commercial banks recorded a comparatively larger drop, decreasing by $206.7 million to $5.22 billion in the week ended May 24, 2024.

Accordingly, the country’s total reserves saw an outflow of $270 million and stood at $14.31 billion.

Published in The Express Tribune, May 31^st, 2024.

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