The rupee continued to fall against the US dollar, closing at its all-time weakest level in the inter-bank market after even hitting 176 in intra-day trade on Friday.

The currency has been under immense pressure in recent days as uncertainty over the International Monetary Fund (IMF) programme rattles market participants. A higher import bill, widening current account deficit, and inflationary concerns have added to the currency woes.

The historic low comes barely two weeks after the rupee had closed at its then-lowest level of 175.27 against the dollar in the inter-bank market.

On Friday, the rupee depreciated for the fifth successive time.

As per the State Bank of Pakistan (SBP), the PKR closed at 175.73 against the USD after a day-on-day depreciation of Rs1.54 or 0.88%. On Thursday, the PKR had dropped to 174.19 against the USD.

The rupee has lost nearly 10% of its value against the US dollar calendar-year-to-date, but almost 14% since its recent high achieved on May 7.

“Uncertainty regarding the IMF talks is causing the PKR fall in the market,” Saad Hashemy Executive Director at BMA Capital, told Business Recorder.

The market has been eagerly awaiting the announcement of the IMF regarding the release of $1-billion under the Extended Fund Facility and, despite statements from the government's financial team, lack of clarity seems to be taking its toll.

Hashemy, however, remained positive that the devaluation phenomenon is temporary, and the rupee will reverse its direction as soon as the IMF announcement is made.

“From a Real Effective Exchange Rate (REER) view, the rupee is still below the dollar, which shows that the devaluation has more to do with IMF uncertainty.”

A similar statement was given by Khurram Schehzad, President and CEO of Alpha Beta Core, while talking to a private channel.

He said the PKR devaluation against USD is due to delay in the IMF programme.

“It would be better to give a deadline regarding negotiations,” said Schehzad. "The market faces a lot of psychological impact due to statements and a delay in an event increases uncertainty.”

He added that the support package offered by Saudi Arabia have not yet reflected on Pakistan's foreign exchange reserve position.

“These reserves were playing a very critical role in providing immediate relief. All these developments, which are not being reflected in the numbers currently, have dented investor confidence,” he said.

While the country's total liquid foreign exchange reserves crossed the $24 billion mark during the last week, analysts on the condition of anonymity have expressed concerns that Pakistan faces a huge funding gap, which will not be met despite IMF's funding.

“The Current Account Deficit (CAD) is expected to be around $12-14 billion, and debt servicing of $15 billion is expected. This translates into $30 billion alone. Furthermore, rising POL rates and freight charges are adding to the import bill. It is a challenging phase from a macroeconomic perspective,” said a market expert.

This article first appeared in Business Recorder on Nov 12, 2021.