Rupee may remain in hot water next week

The rupee may remain in hot water next week, owing to the dollar demand for the year-end import and corporate payments.

The rupee lost nine paisas against the dollar during the outgoing week to end at Rs178.13 in the interbank foreign exchange market.

The depreciation of the local currency continued in the outgoing week, despite curbs imposed by the State Bank of Pakistan (SBP) on the purchase of the foreign currency by individuals.

The central bank on December 19, 2021 issued revised instructions on foreign exchange buying. As per the new instructions, an individual can purchase up to $10,000 in a day and $100,000 in a year subject to certain documentation.

Although the central bank imposed restrictions, the foreign exchange reserves of the country recorded a sizeable decline on a weekly basis.

The official foreign exchange reserves of the SBP reduced $415 million on a weekly basis due to external debt repayment, the central bank said a day ago.

The foreign exchange reserves of the central bank reduced to $18.153 billion by the week ended December 17, 2021, compared with $18.568 billion a week ago.

The overall foreign exchange reserves of the country fell $395 million to $24.633 billion by the week ended December 17, 2021, compared with $25.028 billion a week ago.

The latest forex reserves of the central bank also included $3 billion deposits from the Saudi Fund for Development.

Besides, the large import bill and widening of the current account deficit remained major challenges for the rupee stability during the coming months.

Pakistan’s current account deficit widened to $7.1 billion during the five months (July-November) 2021/22, compared with the current account surplus of $1.87 billion in the corresponding period of the last fiscal year.

The unprecedented rise in the import bill is a major culprit behind widening the current account deficit.

The import bill sharply increased 69.17 per cent to $32.93 billion during the first five months (July-November) 2021/22, compared with $19.47 billion in the same period of the last fiscal year.

The rising import bill widened the trade deficit massively. The trade deficit ballooned 112 per cent to $20.59 billion during the first five months of the current fiscal year, compared with the deficit of $9.72 billion.