Rupee free-fall continues in interbank market

KARACHI: The rupee continued on a downward stream against the dollar on Tuesday, as the market witnessed increased demand for the foreign currency, besides pressure on the economy due to the flood losses.

The exchange rate witnessed a loss of Rs1.56 to reach Rs221.42 against the dollar from the previous day’s closing of Rs219.86. The local currency fell to the historic low of Rs239.94 against the dollar on July 28, 2022.

Currency experts said that the local currency was under renewed pressure as Pakistan is expected to move for importing essential food items after the devastating floods which have destroyed major crops.

The floods may also impact industrial production due to reduction in demand, resultantly the economic growth will slow down, they added.

Similarly, the GDP growth is also expected to remain around 2.3 per cent during the fiscal year 2023 against the International Monetary Fund’s (IMF) forecast of 3.5 per cent.

The country is estimated to suffer a loss of at least $10 billion, caused by weeks of torrential rains and subsequent floods as all major crops have been destroyed.

Pakistan’s trade deficit also widened in August, after witnessing an ease in the previous month, while the analysts predict a further uptick in imports in the coming months.

According to the Pakistan Bureau of Statistics (PBS) data, the trade deficit clocked-in at $3.53 billion in August, compared with $2.73 billion, showing an increase of 28.89 per cent.

During the month, the imports recorded an increase of 20.84 per cent to $6.03 billion, compared with $4.99 billion during the previous month.

The Consumer Price Index (CPI) increased to record 27.26 per cent in August attributed to hiked commodity prices.

The shrinking foreign exchange reserves also remain a key challenge in stabilising the value of the rupee as it witnessed another decline during the outgoing week.

The foreign exchange reserves held by the central bank recorded a decline of $113 million to reach $7.69 billion during the week ended August 26, compared with $7.80 billion on August 19.

The overall liquid foreign currency reserves held by the country, including net reserves held by banks other than the SBP, stood at $13.40 billion. The net reserves held by banks amounted to $5.70 billion.

The country’s current account deficit rose 531 per cent to over $17 billion during the fiscal year 2022 due to massive increase in goods import bill. Overall, the current account deficit was $17.4 billion during the fiscal year 2022, compared with $2.8 billion in the fiscal year 2021, depicting an increase of $14.6 billion.

The local currency remained under pressure since the start of the current fiscal year. The rupee lost Rs16.57 or 8 per cent from Rs204.85 to dollar on June 30, 2022 to the current level of Rs221.42.

At the open market, the buying and selling of the dollar was recorded at Rs231 and Rs233.5 at 4:00pm PST.