Marred by ongoing political uncertainty and a ballooning trade deficit, Pakistan’s rupee continued to hit new lows with the currency closing over the 185 level against the US dollar for the first time after a substantial 0.62% fall in the inter-bank market on Tuesday.

As per the State Bank of Pakistan (SBP), the rupee closed at 185.23, its weakest level in history, after a day-on-day depreciation of Rs1.14.

The rupee has now lost nearly 18% since its most-recent high in May last year, while on a fiscal year to date (FYTD) basis, the local currency has depreciated by over 14%. Since March 2022 alone, the rupee has lost over 4% against the dollar.

During the previous week, political uncertainty, falling foreign exchange reserves, and a general lack of confidence in Pakistan’s economy drove the negative market sentiment, as during the five sessions, the rupee lost nearly 1.3% to end at 184.09.

Oil prices, a major determinant of currency parity, also extended gains on Tuesday as the United States and Europe planned new sanctions to punish Moscow over alleged war crimes by Russian troops in Ukraine, adding to concerns about supply disruptions, while Iran nuclear talks stalled.

Rupee's woeful show Brent crude futures rose $1.20, or 1.1%, to $108.73 a barrel, while US West Texas Intermediate futures were up $1.25, or 1.2%, at $104.53 a barrel.

“Ongoing political turmoil and a record increase in trade deficit has led to rupee's depreciation,” Saad Khan, Head of Research at IGI Securities, told Business Recorder.

He said that the impact of rising oil prices is being reflected in the widening trade deficit, while the government's decision to slash oil price rates by Rs10 per litre has led to an increase in demand.

Pakistan’s trade deficit continued to balloon as it widened by 70.1% during the first nine months (July-March) of the current fiscal year, 2021-22, and reached $35.393 billion compared to $20.802 billion during the same period of 2020-21, revealed the Pakistan Bureau of Statistics (PBS) data.

Khan expressed concern that the local currency may drop to 200, as there is a high demand for the greenback in the open market. “The depreciation trend is expected to continue until tensions at the political front subside,” said Khan.

“The situation with the International Monetary Fund (IMF) regarding the Extended Fund Facility (EFF) remains in doldrums, and there are question marks around it,” said Khan.

The IMF in a statement on Monday said that it will engage on policies to promote macroeconomic stability once a new government is formed.

Pakistan had been in talks with the IMF over the seventh review of the Extended Fund Facility (EFF). However, the current political upheaval has prompted the IMF to say that it will enquire about intentions vis-a-vis program engagement once the new government is formed.