Rupee weakens slightly on IMF loan delay

Currency dips to Rs278.64/$ as central bank continues dollar purchases

KARACHI:

The Pakistani rupee depreciated by Rs0.10, closing at Rs278.64 against the US dollar in the inter-bank market on Monday. This continued the pattern of alternating movement within a narrow band of Rs278-278.74/$ over the past five months, driven by low demand and high supply of the greenback in the economy.

The latest depreciation in the local currency seems to be linked to the ongoing delay in the final approval of a new $7 billion loan programme by the IMF Executive Board. Pakistan was expected to secure this approval in August, but Islamabad is not on the Fund's agenda for its second meeting scheduled for September.

In response, the State Bank of Pakistan has been purchasing US dollars from local currency markets to repay maturing foreign debt on time and to bolster the country's low foreign exchange reserves. This activity creates additional demand for the US dollar, sometimes exceeding supply and exerting limited pressure on the rupee.

The Exchange Companies Association of Pakistan reported that the currency remained stable in the open market for the second consecutive working day, closing at Rs279.75/$.

Financial experts noted that the central bank is absorbing surplus US dollars as inflows from workers' remittances remain strong and export earnings are encouraging. Currency dealers mentioned that without the central bank's intervention in buying the greenback, the rupee could have strengthened to Rs250-260/$ in the inter-bank market. However, the government has projected the rupee-dollar parity at Rs295/$ in the federal budget for the current fiscal year, suggesting that further depreciation is expected in the coming months.