Having to do with the Ukraine war impact on oil prices and carriage costs, these groups were also missing out on the heavy subsidies granted to export-oriented industrial units; and now, with rising cost of inputs due to a weakening rupees, they will have to raise prices to break-even, leaving local consumers to either bear the cost or stop buying. Either way, the impact will be more inflation and lower profitability. If people stop buying local products, it could also lead to increased unemployment. Pakistani rupee on Monday maintained its record-breaking downward streak, as it depreciated beyond Rs182 against the US dollar for the first time in history owing to strengthening of the greenback globally and elevated international oil prices. The rupee freshly depreciated 0.23% and hit a new all-time low at Rs182.19 against the US dollar in the inter-bank market, according to Pakistan’s central bank data. The rupee has maintained its record-breaking downward movement for the 10th consecutive working day, except Thursday (March 24) when it closed flat on a day-on-day basis. The currency has cumulatively lost 2% (or Rs3.68) in the past 10 days from Rs178.51 on March 11.
Since the beginning of current fiscal year, the rupee has dropped a massive 15.6% (or Rs24.65) as compared to the previous fiscal year’s close at Rs157.54 on June 30, 2021. Pakistani rupee has maintained its slump mainly because “the US dollar is gaining strength against other major global currencies for the past few days”, Ismail Iqbal Securities Head of Research Fahad Rauf said:
“So, the rupee is facing double pressure,” he said, adding that “it is losing ground due to the challenges in the domestic economy coupled with the appreciation of the US dollar”. “The delay in IMF (International Monetary Fund) loan programme is also keeping the rupee volatile,” he underlined. The IMF is conducting a seventh review of the economy under its $6 billion loan programme. It was due to announce results of the review last Tuesday (March 22) as per Finance Minister Shaukat Tarin’s statement. Topline Securities Director Research Syed Atif Zafar underlined that the elevated crude oil prices had kept mounting pressure on the rupee. “The higher international crude oil prices will keep Pakistan’s import bill on a higher side and widen the current account deficit,” he said. However, the WTI (West Texas Intermediate) crude price has returned to $105 a barrel from $115 last week, after China considered imposing a lockdown in Shanghai to control Covid-19.
“The oil price above $100 a barrel will still be called elevated as compared to $70 per barrel a year ago,” he said. The current account deficit surprisingly nosedived to around $550 million in February 2022 from an all-time high of $2.53 billion in the previous month. “The deficit is, however, estimated to remain around $1 billion in March in the wake of higher energy prices,” Zafar projected. “The rupee may depreciate to Rs185-190 by the end of this fiscal year (2021-22),” he added. Higher international crude oil prices would keep the rupee under pressure as Pakistan heavily relies on imported energy. The State Bank of Pakistan attributed the almost $3 billion decline in a week to the repayment of external debt, which would be fine if only this were an irregular occurrence, and we were to forget about the mountain of debt that is still to come due in the coming weeks and months. At the same time, some analysts have noted that some commodities have seen their prices rise disproportionately despite only being nominally affected by devaluation and supply factors.
Topline Securities Director Research Syed Atif Zafar underlined that the elevated crude oil prices had kept mounting pressure on the rupee.
