The Pakistani currency hit a four-and-a-half-month low at Rs278.66 against the US dollar in the inter-bank market, continuing its downtrend for the second consecutive working day due to an expected increase in demand for foreign currency following Tuesday's interest rate cut.
According to the State Bank of Pakistan (SBP), the domestic currency shed Rs0.16 on a day-to-day basis, totalling a two-day decline of Rs0.32 in the market.
The currency, however, remained largely stable, moving within the range of Rs278-278.66/$ over the past four-and-a-half months.
The latest depreciation in the rupee was recorded after the central bank cut its key policy rate by 100 basis points to a 16-month low of 19.5% on Monday. The rate cut encouraged businesses to ramp up production through relatively cheaper bank financing, creating demand for additional imports to fuel industries and expand economic growth.
This was the second rate cut in the past seven weeks, reducing it cumulatively by 250 basis points in less than two months.
The central bank reported a recent spike in import demand to around $5 billion a month, compared to around $3.5 billion 12 to 15 months ago.
The bank also projected growth surging to a range of 2.5-3.5% in the current fiscal year 2024-25 amid the rate cut, compared to 2.4% achieved in FY24.
Global and local research houses have projected the bank would cumulatively decrease the policy rate to around 15-16% in FY25 amid deceleration in inflation in the country.
The downturn in the local currency also follows a notable reduction of around $400 million in the country's foreign exchange reserves, now at $9.1 billion, according to SBP's latest weekly report on Thursday.
The currency market, however, ignored the central bank's reports that inflows of workers' remittances sent home by overseas Pakistanis remained above the monthly average of $2.52 billion in July 2024. The multilateral and bilateral inflows are expected to surge post the International Monetary Fund (IMF)'s new $7 billion programme.
Additionally, the available FX reserves at $9.1 billion remain relatively higher compared to foreign debt repayments of $9 billion in the remaining 11 months of FY25.
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