Rupee continues to lose ground

Pakistani currency hit a new four-and-a-half-month low at Rs278.74 against the US dollar in the inter-bank market on Wednesday, maintaining its losing streak for the third consecutive day over potential uptick in demand for the foreign currency for import expenses and foreign debt repayment in the current fiscal year.

According to the State Bank of Pakistan (SBP) data, the rupee ticked down Rs0.08 on a day-on-day basis, which took total losses to Rs0.40 over three days.

The net depreciation of the rupee in July – the first month of fiscal year 2024-25 – remained nominal at Rs0.40 against the US dollar.

The government has worked out the rupee-dollar parity at Rs295/$ for FY25, indicating a gradual building of pressure on the local currency, which may lose around 5.5% (or Rs16) during the year.

Experts, however, see currency stability in the first three to six months with the rupee standing close to current levels.

The latest drop in the currency came after Finance Minister Muhammad Aurangzeb projected further reductions in the central bank’s key policy rate over the course of the current fiscal year.

The lower policy rate will spark an increase in demand for the greenback for import payments because the reduced cost of borrowing encourages businesses to expand production.

The bank has already slashed the rate by 250 basis points to a 16-month low at 19.5% in seven weeks. It is anticipated to push the rate down to 15-16% in FY25.

The rupee also weakened after the S&P Global affirmed Pakistan’s sovereign long-term rating at “CCC+” with a stable outlook.

It said the nation’s dependence on multilateral and bilateral inflows remained intact while completion of the new loan programme of $7 billion, which was pending final approval from the IMF executive board, seemed challenging amid political upheaval.

It, however, acknowledged that the country’s foreign exchange reserves had improved in recent times and stood above $9 billion compared to less than $4 billion in June 2023.

Earlier, Fitch Ratings upgraded Pakistan’s long-term foreign currency issuer default rating (IDR) to “CCC+” from “CCC”, signalling an improvement in the country’s capacity to repay foreign debt ahead of the IMF board meeting for approval of the $7 billion loan programme.

The rating agency assigned the improved rating for the second time in the past 12 months. Before that, it downgraded the rating to “CCC-" in February 2023.