- Cumulative fall in inter-bank market hits 11% in less than 5 months
Rupee depreciated massively for the 10th consecutive session on Wednesday, pushing the local currency to a fresh all-time low against the US dollar in the inter-bank market and taking cumulative fall during the ongoing calendar year to 11%.
As per the State Bank of Pakistan (SBP), the currency closed at 198.39 after a day-on-day depreciation of Rs2.65 or 1.3%. On Tuesday, the currency had lost Rs1.56 or 0.8% to close at Rs195.74.
In the open market, the rupee officially crossed the 200-barrier, with dealers saying they sold a dollar for 201 as well.
The massive decline has become a matter of hot debate in Pakistan, and raises question marks on the government’s economic policy. Islamabad is currently engaged in talks with the International Monetary Fund (IMF), desperately seeking a revival of the stalled Extended Fund Facility (EFF), which many believe could give some strength to the local currency.
At the same time, the government’s inability to take major economic decisions has also given impetus to speculation in the local market with the Supreme Court’s decision on Tuesday adding further to political upheaval.
In its announcement, the SC declared that the vote of any member of a parliamentary party in a House that is cast contrary to any direction in terms of para (b) of clause (1) of Article 63A cannot be counted and must be disregarded.
This throws into question the election of Hamza Shehbaz as Punjab chief minister, as 24 of the votes he got were from PTI dissident MPAs.
Meanwhile, a team of the Finance Division is holding consultations in Doha with the IMF Mission. An official told Business Recorder that the Pakistani team will hold technical and policy-level talks with the IMF staff mission till May 25 for the revival of the EFF programme. Secretary of finance, additional secretary of finance as well as the Federal Board of Revenue (FBR) chairman along with Finance Minister Miftah Ismail will take part in the talks.
The IMF, in a statement subsequent to a meeting with the finance minister in Washington, had said prompt action is needed to reverse fuel subsidies in the countries, which have slowed discussions for the 7th review. However, the finance minister announced on May 15 that the government has for the time being decided not to get rid of the subsidy on diesel and petrol announced by the previous government.
“The ongoing political uncertainty after the SC decision and lack of clarity on the IMF programme, amid government inaction on IMF recommendations, has added to concerns,” Fahad Rauf, Head of Research at Ismail Iqbal Securities Limited, told Business Recorder.
The market expert said that the dollar is gaining strength against other currencies as well.
“REER remains above 95, which means that the rupee remains fairly valued, but the situation might improve with the inflows of dollars,” said Rauf.
The revival of the IMF programme is seen as crucial for the cash-strapped economy of Pakistan, which has seen its foreign exchange reserves plummet in recent weeks amid import payments and debt servicing.
The FX reserves held by the central bank 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.
Inter-bank market rates for dollar on Wednesday
BID Rs 198.80
OFFER Rs 199
In the open market, the PKR lost 2 rupees for buying and 2.50 rupees for selling against USD, closing at 199 and 200.50, respectively.
Against Euro, the PKR lost 1.50 rupees for both buying and selling, closing at 206 and 208, respectively.
Against UAE Dirham, the PKR lost 50 paisas for buying and 20 paisas for selling, closing at 54 and 54.50, respectively.
Against Saudi Riyal, the PKR lost 40 paisas for buying while gaining 20 paisas for selling, closing at 52.40 and 52.80, respectively.
Open-market rates for dollar on Wednesday
BID Rs 199
OFFER Rs 200.50