- Govt admits inability to intervene in foreign exchange market
Pressure due to import payments and the government's reported inability to intervene resulted in the rupee falling further against the US dollar on Thursday with the local currency closing near 240, another record low in the inter-bank market on Thursday.
As per the State Bank of Pakistan (SBP), the rupee closed at 239.94, a day-on-day fall of Rs3.92 or 1.63%, against the greenback.
The latest depreciation takes total loss to over 13% for the rupee in the last 10 trading sessions.
On Wednesday, the rupee had closed at 236.02, a day-on-day fall of Rs3.09 or 1.31%, as persistent political and economic uncertainty continued to add pressure.
Finance Minister Dr Miftah Ismail on Wednesday said government interventions in the foreign exchange (forex) market cannot be made to control the rate of dollar in light of the commitment with the International Monetary Fund (IMF), Business Recorder reported, citing well-informed sources.
He maintained that pressure on forex is due to demand for payments against the import bill from last month, worth $7.5 billion. However, he assured the issue of US dollar rate and pressure on forex reserves will be alleviated and the exchange rate is expected to stabilise from August onwards.
Meanwhile, Pakistan posted a current account deficit (CAD) of $2,275 million for the month of June 2022, compared to a deficit of $1,637 million recorded during June 2021. A widening current account deficit adds strain on the currency.
Overall, the CAD was $17.4 billion in FY22 compared to $2.8 billion in FY21, depicting an increase of $14.6 billion in a year.
Meanwhile, the US Federal Reserve raised the policy rate by 75 bps in an effort to cool the most intense breakout of inflation since the 1980s.
Coming on top of a 75-basis-point hike last month and smaller moves in May and March, the Fed has raised its policy rate by a total of 225 basis points this year as it battles a 1980s-level breakout of inflation with 1980s-style monetary policy. This has added to the US dollar's strength against major currencies.
Samiullah Tariq, Head of Research at Pak Kuwait Investment Company, told Business Recorder that the government's admission regarding the IMF condition was already a known fact in the market.
“At the moment, import payments are ongoing, which has kept the rupee under pressure. Furthermore, Fed rate hike is also impacting the dollar rate,” he said.
The analyst expected the rupee to fall to 245 in the coming days. “Unless material developments are realised, i.e. inflows from the IMF and friendly countries are not attained, the fall will continue,” he said.
Meanwhile, Zafar Paracha, General Secretary of Exchange Companies Association of Pakistan (ECAP), expressed concern over the government's inaction on the development.
“The prices of energy and other essential commodities have gone down in the international market, which we import. Furthermore, the government has also imposed import controlling measures. Consequently, the demand for dollar should go down, which is not the case at the moment,” said Paracha.
“All stakeholders should agree on a one-point agenda of economic revival to reverse the situation.”
Inter-bank market rates for dollar on Thursday
BID Rs 240
OFFER Rs 242
In the open market, the PKR lost 3 rupees for both buying and selling against USD, closing at 242 and 244, respectively.
Against Euro, the PKR lost 3 rupees for both buying and selling, closing at 243 and 245 respectively.
Against UAE Dirham, the PKR lost 1.10 rupees for both buying and selling, closing at 65.60 and 66.10, respectively.
Against Saudi Riyal, the PKR lost 1.50 rupees for both buying and selling, closing at 64 and 64.50, respectively.
Open-market rates for dollar on Thursday
BID Rs 242
OFFER Rs 244