Geopolitical tension flared further after Russian President Vladimir Putin announced the launch of a major offensive against Ukraine earlier in the day, taking a toll on currencies around the world including Pakistan's rupee that recorded a 0.13% drop against the US dollar in the inter-bank market on Thursday.

As per the State Bank of Pakistan (SBP), the rupee closed at 176.39 after a day-on-day depreciation of 23 paisas or 0.13%. On Wednesday, the local currency had appreciated 7 paisas against the dollar.

In a major development with global implications, Russia launched an invasion of Ukraine by land, air and sea, the biggest attack by one state against another in Europe since World War Two.

Rupee registers minor gain against US dollar

The development took a toll on equities around the world, as Pakistan's key benchmark index - the KSE-100 - started with an over 2% drop.

Meanwhile, commodity prices also pushed upwards in the global market. Oil prices jumped, with Brent rising above $105 a barrel for the first time since 2014, after Russia's attack on Ukraine exacerbated concerns about disruptions to global energy supply.

High oil prices are a major negative for Pakistan, which is a net importer of the commodity, as it adds to the import bill and widens the current account deficit.

“The ongoing geopolitical situation would keep the local currency under pressure,” Saad Hashmey, Executive Director at BMA Capital, told Business Recorder.

“On Real Effective Exchange Rate (REER) basis, the local currency remains fairly-valued.

“If situation worsens, pressure on rupee would rise, as vulnerabilities on the external account front would exacerbate,” added Hashmey.

This story was first published in Business Recorder on February 24, 2022.