Pakistan's rupee closes at its lowest level against the US dollar as pressure remains

Another 0.5% fall on Tuesday meant the Pakistani rupee closed at its all-time low against the US dollar, surpassing 168.44 it registered in August last year, with policymakers left scratching their heads on how to stem the decline of the currency.

As per the State Bank of Pakistan (SBP), the currency closed at 168.94 against the dollar in the inter-bank market on Tuesday, a decline of Rs0.84 or 0.50%. The rupee registered its then-lowest level of 168.45 against the US dollar on August 26, 2020.

The rupee has been under pressure since May this year with an increasing import bill causing immense worry among policymakers. The Pakistani currency has lost close to 10% since its recent high on May 14, 2021.

Pakistan's rupee nears all-time low after another fall against US dollar

Rising imports have become a major concern, increased 73% year-on-year during July-August to $12.1 billion. With exports unable to match the pace, the trade deficit for the two-month period widened 120% to $7.5 billion.

"In addition, uncertainty in Afghanistan has further raised the pressure on the rupee against the USD," Samiullah Tariq, Head Of Research And Development at Pakistan Kuwait Investment Company (Private) Limited, told Business Recorder.

“Earlier, dollar inflows to the tune of $4-5 million used to come to Pakistan through Afghanistan on a daily basis, which translated into monthly flows of $150-200mn. But since the recent developments the dollar inflow from Afghanistan to Pakistan has dropped to nil,” said Tariq.

An economic crisis in Afghanistan has been brewing since the Taliban takeover of the country in mid-August. Much of the Afghan central bank's $10 billion in assets are parked overseas.

This action has exacerbated the country's economic crisis as Afghanistan is currently facing a shortage of dollars.

Earlier, Afghanistan central bank's former chief said with the Taliban in control and foreign aid blocked, Afghanistan's economy is likely to contract sharply as it faces a shortage of cash.

Meanwhile, Tariq added that an increase in the prices of commodities such as palm oil, crude oil as well as rise in freight rates have all added to the pressure on the currency.

Oil prices have rallied in recent week, touching $74 a barrel.