Pakistan's rupee continued to plummet as the ongoing political crisis coupled with depleting foreign exchange reserves pushed the local currency to close over the 188 level against the US dollar for the first time after a massive 1.09% fall in the inter-bank market on Thursday.

As per the State Bank of Pakistan (SBP), the rupee closed at 188.18, its weakest level in history, after a day-on-day depreciation of Rs2.05.

The rupee has now lost over 19% since its most-recent high in May last year, and nearly 6% since the start of last month before political uncertainty began.

Oil prices, a major determinant of currency parity, also rose on Thursday as worries over tight supplies still clouded the market outlook.

Zafar Paracha, General Secretary at Exchange Companies Association of Pakistan (ECAP), told Business Recorder that the impact of the Russia-Ukraine crisis and the ongoing political turmoil had been factored in. “This, however, seems like the targets assigned by the International Monetary Fund (IMF) to devalue the rupee are being met,” Paracha said.

Another day, another record low: Rupee crosses 186 against US dollar

The currency dealer informed that there is "no demand" for dollars in the open market, as the exchange companies are selling over 90% of their forex currency to the inter-bank. He said repayment of Chinese loans and rising commodity prices have added to the pressures.

Expressing concern over the ongoing political crisis in the country, Paracha said that if stability is not achieved a situation similar to Sri Lanka's may happen in Pakistan. “I would urge stakeholders to impose an economic emergency in the country, and impose a ban on all imports except essential items,” he said.

He said that unless "bold steps" are taken, the rupee "may cross the 200 level" as well, in a span of days.

Similar concerns were highlighted by AAH Soomro, ex-managing director KASB Securities, who termed it a "panic situation" as there is no driver of the economy.

“It's as bad as it can get,” tweeted Soomro, while calling for the SBP to undertake a monetary hike.

Meanwhile, another expert pointed out that the ongoing devaluation is a culmination of multiple factors, both economic and political.

“Our reserves have depleted massively,” Asad Rizvi, ex-country head at Chase Manhattan Bank, said while talking to a private channel.

Reserves held by the State Bank of Pakistan (SBP) decreased by a massive $2.915 billion, falling to $12.05 billion, on account of repayment of external debt, including repayment of a major syndicated loan facility from China, revealed data released by the central bank last week.

“Secondly, oil prices, which remain above $100 per barrel, have significantly raised our oil import bill by 40-50%,” said Rizvi.

He said that the central bank desists from direct intervention in the market, as it will lead to a further decline in its reserves.

This story was first published in Business Recorder on April 7, 2022.