The local currency sustained a downtrend for the ninth consecutive session on Tuesday as the rupee closed at an all-time low of Rs195.74 against the greenback in the inter-bank market.
The devaluation was fuelled by economic and political uncertainty and lack of clarity on revival of the $6 billion International Monetary Fund programme.
In addition, the government’s decision to keep local oil prices unchanged signalled an erosion of the country’s finances and further swelling of the external account. This factor in particular has mounted pressure on the local currency.
As per the State Bank of Pakistan (SBP), the rupee closed at 195.74 after a day-on-day depreciation of Rs1.56 or 0.8%. On Monday, the currency lost Rs1.65 or 0.85% to close at Rs194.18.
Oil price, a major determinant of currency parity, hit its highest level in seven weeks on Tuesday, supported by the European Union’s ongoing push for a ban on Russian oil imports that would tighten supply and as investors focused on higher demand from an easing of China’s Covid lockdowns.
Brent crude rose as high as $115.50, its highest since March 28, and by 1024 GMT was up $1.16, or 1%, to $115.40. US West Texas Intermediate (WTI) crude gained $0.78, or 0.7%, to $114.98.
Additionally, foreign exchange reserves held by the SBP decreased another $190 million to $10.31 billion last week, with the level staying at less than 1.5 months of import cover. Low level of reserves has continued to strike the rupee over the past few weeks.
On Monday, Prime Minister Shehbaz Sharif expressed serious concern over the persistent slide in the rupee against the US dollar and discussed the matter with representatives of exchange companies.
According to the Forex Association of Pakistan President Bostan Malik, rising trade deficit, political instability and delay in the release of the $1 billion tranche from IMF has largely contributed to the current fall of rupee.
Speaking to Business Recorder, Arif Habib Limited Head of Research Tahir Abbas said that the local currency was depreciating day after day due to political and economic uncertainty.
“Furthermore, the stability in petroleum prices is not sustainable for Pakistan therefore it is draining the value of rupee against the greenback,” he said. “Currently, the local currency is in a freefall mode due to a wide range of factors.”
He said that Pakistan and IMF were set to begin talks on May 18 and the rupee was likely to see stability after the meetings.
He also urged the leadership to give an economic roadmap and clarify the situation for the public to end panic and speculation in the foreign exchange market.
This story was first published in Business Recorder on May 17, 2022.
