Rupee falls slightly on pent-up dollar demand

Pakistani currency ticked down Rs0.03 on the first working day of the new fiscal year in the inter-bank market, closing at Rs278.37 against the US dollar apparently on the back of a slight increase in demand for the foreign currency.

According to the State Bank of Pakistan’s (SBP) data, the rupee strengthened 2.75% to Rs278.34/$ in the previous fiscal year, which ended on June 30, 2024; its first appreciation in three years.

Exchange Companies Association of Pakistan (ECAP) reported that the local currency appreciated Rs0.05 on a day-on-day basis in the open market and closed at Rs280.20/$.

The currency came under some pressure in the inter-bank market on Tuesday, especially in the closing hour of the day, when the market saw a spike in demand for the greenback due to the resumption of trade payments.

Banks remained closed for an unusually longer period over the weekend and on Monday, when they did not open for public dealings due to half-yearly closing of accounts on the previous working day.

During that period, the demand for foreign currency accumulated for import and other necessary payments.

Market talk suggests the rupee appreciated Rs0.14/$ when currency trading kicked off on Tuesday. Later, the local currency came under pressure when exporters slowed down the sale of their dollar proceeds.

Exporters opted to hold back from offloading dollars as they awaited news about the fresh International Monetary Fund (IMF) loan programme for Pakistan.

Any rupee depreciation from July onwards will provide exporters a better exchange rate for their export proceeds.

There is widespread speculation in the market the rupee will depreciate before any agreement on the loan package, which is expected by the end of July 2024.

However, the ongoing protests and sit-ins against the inflated electricity bills and a potential further hike in consumer tariffs are piling pressure on the government to delay such decisions. If the government gives in to the pressure from the masses, the finalisation of the IMF loan programme may take more time.