- Increase in global oil prices creates panic in currency market
The rupee recorded a significant loss against the US dollar in the inter-bank market on Friday and depreciated by 0.78% as decline in the foreign exchange reserves dented market sentiment.
Resultantly, the local currency shed 0.78% or Rs1.58 to close at Rs202.35 on Friday. On a weekly basis, the local currency lost 2.24% against the US dollar.
On Thursday, the rupee had gained 75 paisa to close at 200.77 on the back of improved spirits over revival of the International Monetary Fund (IMF) programme and hope of receipt of $2.4 billion from China.
However, on Friday, the rupee depreciated as the State Bank of Pakistan’s (SBP) foreign exchange reserves fell sharply by $497 million from May 27 to June 3.
"A significant decline in foreign exchange reserves created a negative sentiment in the market,” Ismail Iqbal Securities analyst Abdullah Umer told Business Recorder.
According to recent data, SBP forex reserves stood at $9.226 billion during the week as of June 3, 2022 compared to $9.722 billion on May 27, 2022. The decline in SBP reserves was witnessed due to external debt repayment. During the period under review, reserves held by the commercial banks fell $98 million to reach below $6 billion mark.
Umer said that a spike in oil prices also added to the panic as it pointed towards further increase in imports. “No respite seems ahead for the oil prices that are hovering at $122-123 per barrel."
He added that the increase in margin requirement from exporters for letters of credit has also created pressure on the rupee, adding to the demand for dollars as well.
Umer said that the budget (which was announced on Friday) is expected to be contractionary in nature, and would not have much impact on the currency market.
Asad Rizvi, former country treasurer of Chase Manhattan Bank, shared that the drop in foreign exchange reserves was anticipated.
“This is no surprise for the economy that generates low income and is happy to raise funds to pay back,” said Rizvi in a tweet.
Inter-bank market rates for dollar on Friday
BID Rs 202.50
OFFER Rs 202.70
In the open market, the PKR lost 50 paisas for both buying and selling against USD, closing at 201.50 and 203, respectively.
Against Euro, the PKR remained unchanged for both buying and selling, closing at 214 and 216, respectively.
Against UAE Dirham, the PKR lost 10 paisas for both buying and selling, closing at 54.80 and 55.30, respectively.
Against Saudi Riyal, the PKR lost 10 paisas for both buying and selling, closing at 53.60 and 54.10, respectively.
Open-market rates for dollar on Friday
BID Rs 201.50
OFFER Rs 203