Cash margin requirement on imports may support rupee
KARACHI: The measures taken by the State Bank of Pakistan (SBP) through imposing restrictions on imports may support the rupee against the dollar next week.
However, the free-fall in the rupee value continued during the outgoing week, as the dollar hits the record high of Rs170.66 on September 30, 2021 in the interbank foreign exchange market.
The burgeoning deficits in trade and current account would remain the major concerns for the exchange rate in the coming week.
The exchange rate ended at Rs170.48 against the greenback by the last trading day of the outgoing week. The rupee recorded a decline of Rs12.94, or 8.21 per cent, against the dollar till the closing of trade on October 1, 2021.
On the day of record rupee low at Rs170.66 to the dollar, the central bank took a major step to impose 100 per cent cash margin requirement on imports of additional 114 items.
Previously, the SBP had taken similar measures to discourage imports of non-essential and luxury items to support the exchange rate.
The addition of 114 more items made the total imported items to 525, which are subject to 100 per cent cash margin requirement.
The State Bank said: “The measure will help discourage imports of these items and; thus, support the balance of payments.”
This is the second decision of the central bank in the last few days to curtail the import bill. On September 23, 2021, the SBP imposed restrictions on bank financing for imported motor vehicles. Besides, it tightened the regulatory requirements for financing domestically manufactured/assembled vehicles of more than 1000cc engine capacity and other consumer financing facilities such as personal loans and credit cards.
However, the earlier decision had failed to support the local currency and the dollar remained higher for external payments.
The future outlook for the rupee is not encouraging due to the rising import bill. The domestic demand for imported raw materials and finished products rose consistently, especially after ease in the restrictions related to the coronavirus pandemic.
Pakistan is a major oil importer. The oil import bill surged 103 per cent to $3.08 billion during the first two months, July-August of the current fiscal year, compared with $1.52 billion in the same months of the last fiscal year.
The domestic oil sales have increased 26 per cent on a year-on-year basis to 1.93 million tonnes in September 2021, compared with 1.52 tonnes in the same month of the last year.
Due to higher import payments, the trade deficit widened sharply by 122 per cent to $7.58 billion in the first two months of the current fiscal year, compared with the deficit of $3.40 billion in the corresponding months of the last fiscal year.
Analysts believed the rupee may gain value next week due to the ease in the payments pressure after the quarter ended on September 30, 2021.
They believed the external payments in the shape of import and corporate payments are usually on the higher side by the quarter-end.
However, the majority of participants in a poll conducted by Topline Securities expect the rupee/dollar parity between 165 and 170 by the end of 2021, while some others believe it to be between 170 and 175.
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