Rising commodity prices coupled with an increase in domestic political uncertainty pushed Pakistan's rupee to yet another record low against the US dollar after it depreciated 0.46% in the inter-bank market on Thursday.
As per the State Bank of Pakistan (SBP), the rupee closed at 183.48, its weakest level in history, after a day-on-day depreciation of 84 paisas.
The rupee has lost nearly 17% since its most-recent high achieved in May last year. On a fiscal year to date (FYTD) basis, the local currency has depreciated by over 14%.
Rupee continues its losing streak, falls another 0.16%
Oil prices, a major determinant of currency parity, dived more than $5 a barrel on Thursday as the United States said it is considering the release of up to 180 million barrels from its strategic petroleum reserve (SPR) over several months to calm soaring crude prices.
Brent crude futures for May fell $4.87, or 4.3%, to $108.58 a barrel. US West Texas Intermediate futures for May delivery fell $5.90, or 5.5%, to $101.92 a barrel.
Russia is the world’s second-largest oil exporter and sanctions imposed by the West as punishment for the invasion of Ukraine have disrupted flows from the country, driving prices higher.
“Despite the latest fall, oil prices still remain high for Pakistan,” Abdullah Umer, research analyst at Ismail Iqbal Securities Limited, told Business Recorder. The analyst was of the view that no fundamental changes have been seen as the oil market remains volatile.
Umer said foreign exchange reserves are witnessing a fall, which has created concern over Pakistan's balance of payments.
In addition, the no-confidence motion against Prime Minister Imran Khan is also taking a toll on sentiment, Umer added.
“In the short-term, the rupee would remain under pressure. However, if political uncertainty subsides, it may lead to improvement,” he said.
Meanwhile, Moody’s credit ratings agency also expressed apprehensions over the ongoing political turmoil in Pakistan.
“We view the no-confidence motion as credit negative because it raises significant uncertainty over policy continuity, as well as the government's ability to continue to implement reforms to increase productivity growth and secure external financing, including from the International Monetary Fund (IMF),” said Moody’s.
Ex-country Head at Chase Manhattan Asad Rizvi also expressed concern regarding the ongoing political uncertainty.
“It’s too tricky to comment, as uncertainty is damaging for the economy,” he said. “My best guess is that in case of no-confidence vote, resignation could follow and we could be heading for elections,” said Rizvi.
“Hope that I am wrong because in such a situation the financial markets will be rattled,” he said.
