KARACHI: Pakistani rupee has been on a losing streak against the US dollar in the current fiscal year 2021-22 and has so far shed 4.21 percent of its value (Rs6.64) against the greenback in the interbank market during the last 45 days.
The US dollar closed at Rs164 on Friday last, the lowest level of the local unit against the greenback since October 06, 2020.
Market experts said the rupee remained under pressure against the US dollar chiefly due to the current account deficit which stood at $1.85 billion in fiscal year 2020-21 owing to a jump in imports on account of increase in crude oil and other commodity prices. Again, the current account deficit figures for July were not impressive, they added.
They said the rupee remained under pressure due to the higher demand of the foreign currency for import payments. “Once the pressure for import payments releases and the current account deficit narrows, the rupee performance will improve again,” they added.
However, the market anticipated the announcement made by Finance Minister Shaukat Tarin regarding the date of inflows from the IMF. Tarin said that Pakistan will get $2.77 billion from the IMF on August 23. They said that such inflows would help the country ease pressure on the external front. However, the ballooning trade deficit remains a concern for the rupee stability, they warned.
They said the Pakistani rupee has been witnessing pressure in the post-budget period on account of rising imports led partly by higher commodity prices and for machinery. They said the central bank has been following a flexible exchange rate policy and focusing on sustainable current account balance; therefore, it interferes only when any manipulation is witnessed.
“The SBP let the rupee fall, as it believes it is overvalued in real terms despite higher inflation. So far, there are no traces of manipulation and the decline is purely a demand and supply phenomenon,” they added.
“We believe if imports decline from here and flows remain strong in the shape of higher exports and remittances then one might expect the rupee to recover its lost ground. The key to the above is containment of inflation and trade balance,” they elaborated.
Market insiders said the country’s reliance on external debt to repay old debt is increasing, which also impacts the rupee-dollar parity negatively. This, coupled with higher imports, is pressurising the rupee in the interbank currency market. The continued deterioration of the rupee in the last 45 days will put an extra burden on the external debt.
