Rupee slides marginally to Rs277.92/$

Pakistani rupee depreciates slightly against the dollar.

KARACHI:

The Pakistani rupee weakened slightly against the US dollar, depreciating by 0.02% in the interbank market, on Wednesday. The currency closed at 277.92, down by Re0.05 from Tuesday's 277.87, according to State Bank of Pakistan (SBP) data.

Globally, the US dollar rebounded from a three-week low against the yen and remained stable against other major currencies as traders evaluated the potential for a Federal Reserve interest rate cut this month.

Exchange Companies Association of Pakistan (ECAP) representative Zafar Paracha attributed the rupee's minor fluctuations to routine supply-demand dynamics and market corrections. Paracha argued that the rupee should stabilise around Rs250, dismissing exporters' claims that a stronger currency would harm exports. "Evidence shows remittances grow by 15-20% annually without incentives, while exporters receive 35% in incentives without significant growth," he said.

Discussing the open market, Paracha noted, "We no longer have sufficient buyers in the open market, so we sell 90-95% of our stock to the interbank market. This is in stark contrast to previous practices, where only 10-15% was sold to the interbank market."

In a report, Tola Associates President Ashfaq Tola highlighted the negative impact of the rupee's overvaluation on Pakistan's economy. Aligning the PKR/USD exchange rate with its estimated real value of 211.5/$ could yield significant benefits such as reversing inflation trends and create fiscal space, he wrote.

Tola projected that adjusting the exchange rate could reduce current inflation rates of 8.68% to a deflationary rate of 4.67% by FY25, enabling interest rates to drop below 2%. This could save the government Rs6,346 billion in debt repayments, with a 1% interest rate cut alone reducing repayments by Rs475 billion in FY25.

Meanwhile, gold prices in Pakistan remained unchanged on Wednesday, mirroring global market stability. In the local market, gold was priced at Rs275,200 per tola and Rs235,940 per 10 grams, according to the All-Pakistan Gems and Jewellers Sarafa Association (APGJSA). Globally, gold prices remained steady on Wednesday, with the international rate at $2,640 per ounce.

Abdullah Abdul Razzaq, a member of the APGJSA, noted that that market activity might pick up in January after the swearing-in of the newly elected US President, Donald Trump.