Rupee falls on high dollar demand talk

Monetary easing likely to create additional demand for import payments

KARACHI:

Pakistani currency on Monday depreciated Rs0.17 and settled at Rs278.37 against the US dollar in the inter-bank market over projections that demand for the foreign currency was set to jump in the coming weeks following a reduction in the State Bank of Pakistan (SBP)’s policy rate.

According to the central bank data, the rupee had closed at Rs278.20 against the greenback on Friday.

The local currency has gained a net 10.32%, or Rs28.73, over a period of nine months compared to the record low close at Rs307.10/$ in the first week of September 2023.

Later in the day, the central bank slashed its benchmark interest rate in line with market expectations for the first time in four years, reducing it by 1.5 percentage points to 20.5%. The monetary easing is expected to create an additional demand for US dollars for import payments.

Earlier, the financial markets took the stance that the rupee-dollar parity would remain stable till the end of current fiscal year on June 30, 2024. They foresaw a gradual depreciation of the rupee from July onwards owing to higher demand for the greenback.

The Exchange Companies Association of Pakistan (ECAP) reported that the local currency dropped Rs0.09 and closed at Rs280.15/$ in the open market.

Renewed pressure on the currency coincided with no concrete statements about fresh investments from Beijing under the China-Pakistan Economic Corridor (CPEC) at the conclusion of Prime Minister Shehbaz Sharif’s visit to China.

The depreciation came despite the inflow of record high workers’ remittances of $3.24 billion in May 2024, up 54% year-on-year, which suggested that the current account balance would remain in surplus for the fourth month in a row.