Concerns pertaining to the geopolitical situation added to the woes of the Pakistani Rupee, which for the first time in its history dropped below the 179 level, depreciating 0.13% against the US dollar in the inter-bank market on Tuesday.

As per the State Bank of Pakistan (SBP), the rupee closed at 179.22 after a day-on-day depreciation of 24 paisas. This is the lowest the rupee has ever been, after hitting 178.98 on Monday. This comes amid the ongoing Russia-Ukraine conflict.

The local currency has devalued by over 12.1% during the ongoing fiscal year, and by over 15% since its last high, achieved on May 14, 2021.

A widening current account and high import bills have weakened the Pakistani rupee, adding pressure on the balance of payment.

Against USD: New lows as rupee approaches 179 in inter-bank

On the other hand, a much-needed respite in oil prices was seen on Tuesday, which slid to a two-week low as ceasefire talks between Russia and Ukraine eased fears of further supply disruptions and surging Covid-19 cases in China fuelled concerns about slower demand.

Brent futures dropped $4.74, or 4.4%, to $102.16 a barrel, while US West Texas Intermediate (WTI) crude fell below $100 level for the first time since March 1, dropping $4.58, or 4.2%, to $98.43 a barrel.

However, despite a drop in oil prices in the international market, the rates are still too high for oil-importing countries like Pakistan, Saad Hashmey, Executive Director at BMA Capital, told Business Recorder.

“The geopolitical uncertainty due to the Russia and Ukraine situation has pushed up commodity prices including wheat. This has weakened currencies across the globe against US dollar. Only a normalisation of situation would bring the prices down,” he said.

The analyst expressed concern over reports regarding Russia banning export of grain, which may push up the price of the commodity.

Meanwhile, Hashmey said that due to the revival of international travel amid an ease in Covid restrictions, remittance inflows to Pakistan has dwindled and may decline further in coming months, “which is not a good sign for the country’s external front”.

“Volatility can be expected in the rupee due to the geopolitical situation, amid rising commodity prices and weakening of other currencies against the dollar,” said Hashmey.

Another analyst on the condition of anonymity told the scribe that Pakistan exports to Europe, one of the largest exports destinations of the country, may decrease due to the ongoing situation in the region.

“Demand for Pakistan exports to Europe may taper down due to a war-like situation in the region, pushing countries to ramp up their defence expenditure, which may hit Pakistan export proceeds,” said the analyst.

The story was originally published in Business Recorder on March 15, 2022