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Markets

Rupee declines to nine-month low as import bill mounts

  • Pressure on currency comes amid widening current account deficit
19 Jul 2021

Pakistani rupee declined to its lowest value in almost nine months, losing close to one percent against the US Dollar in inter-bank trading on Monday.

At close, PKR declined to Rs161.48 against the dollar as per the State Bank of Pakistan (SBP).

Forex Association of Pakistan President Malik Bostan said that the rising import bill and increasing current account deficit have put pressure on the rupee. The country’s current account posted a massive $632-million deficit in May 2021 compared to a surplus of $329 million recorded in May 2020, recording the highest monthly deficit after December 2019.

Current account posts massive $632m deficit in May 2021

Bostan was of the view that the decision to end the amnesty scheme for the construction industry has put pressure on the rupee. "Both local and foreign investors were using their dollar reserves to invest in the construction sector. Now that it has ended, the flow of dollars has slowed down."

The amnesty scheme has been discontinued from the current fiscal year amid pressure from the International Monetary Fund (IMF).

Furthermore, exporters have not yet converted their proceeds into rupees, which has added to the pressure on forex markets, said Bostan. He also said that situation on the external front has worsened, and investor confidence has been hit amid the current political situation in Afghanistan and the Dasu dam incident.

PKR experiences net fall

Meanwhile, Tahir Abbas, Head of Research at Arif Habib Limited (AHL), said that the hike in USD value has come on the back of the free-floating rupee that is now determined by demand-and-supply forces. “With expected inflows, the pressure on PKR would reduce,” said Abbas.

Pakistan is due to receive loans from international lenders including the Asian Development Bank (ADB), and the IMF.

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