Maintaining its spree of setting new lows for the third straight day, Pakistani rupee suffered another massive hit on Thursday when the dollar rose to all-time high in the interbank market at Rs191.77.
The rupee’s weakest closings prior to this were 190.02 on Wednesday last and 188.66 on Tuesday last. The State Bank of Pakistan said in a statement that the rupee opened at 190.02 against the US dollar in the interbank market and closed at 191.77 after shedding Rs1.75 (-0.91 percent). Within the open market, the rupee was traded at 193/194 per dollar against 191/192 a dollar a day earlier.
The rupee has shed Rs6.10 against the US dollar during the last five sessions. Overall, the rupee has depreciated by Rs34.28 against the US dollar during the ongoing fiscal year 2021-22 and Rs15.28 during the current year 2022.
The main reason behind this rapid depreciation of rupee is delay in finalisation of an agreement with the International Monetary Fund (IMF). Pakistan is currently relying on inflow under its Extended Fund Facility (EFF) of IMF, hoping to convince the lender of releasing its next tranche to boost foreign currency reserves.
Pakistani authorities and the IMF team will resume discussions over policies for completing the seventh review in Doha next week.
Traders and markets are looking at the IMF as progress with the Fund instils investor confidence in the economy, stabilises Pakistan’s foreign exchange reserves, and unlocks funding from other international financial institutions.
According to media reports, financial assistance from Saudi Arabia and China is now conditional to the IMF’s allocation of $1bn to Pakistan. The government’s indecisiveness over economic decisions is heavily weighing on the local currency. This sharp depreciation is also attributed to the prevailing uncertainty on the economic and political fronts.
Moreover, a higher import bill is also weighing on the local currency. A widening trade deficit has put pressure on the country’s foreign exchange reserves as well, with the central-bank held level falling to below two months of import cover. The trade deficit has widened 64.79 percent during the first 10 months (July-April) of the current fiscal year 2021-22, amounting to a massive $39.3 billion compared to $23.8 billion during the same period of 2020-21.
On the other hand, the total liquid foreign exchange reserves held by the country decreased for the 12th consecutive week by $115 million (0.7 percent) on a week-on-week basis to $16.55 billion as of the week ended on April 30, 2022.