Surging oil prices likely to keep rupee under pressure

KARACHI: The surging global crude oil prices are likely to keep the rupee under pressure despite the measure taken by the State Bank of Pakistan (SBP) to provide support to the local currency.

The hike in international oil prices coupled with the declining forex reserves of the country kept the rupee under pressure during the outgoing week.

The rupee declined by 53 paisas against the dollar during the outgoing week to end at Rs176.77, compared to Rs176.24 during the week ended January 21, 2022.

The local currency slightly recovered on Friday, after the Senate on Friday, January 28, passed the State Bank of Pakistan (SBP) (Amendment) Bill 2021, paving way for resumption of the International Monetary Fund (IMF) programme.

The IMF Executive Board is set to meet on February 2, for Pakistan’s sixth review of the Extended Fund Facility (EFF).

The success of the sixth review and the disbursement of about $1,059 million is expected to enable the local currency to show some growth. However, the rising global crude oil prices remains a constant challenge for the rupee to sustain against the dollar.

The local currency was expected to show growth against the greenback as the government in the Finance (Supplementary) Bill 2021, withdrew exemptions and concessions worth Rs343 billion. These concessions were available on various non-essential and luxury items.

Likewise, the SBP on January 5, 2022 directed the exporters to realise their export receipts within 120 days from the date of shipment instead of 150 days.

These measures were expected to ease the burden on the exchange rate by reducing the import bill of the country, but the surging oil prices in the international market kept pushing the local currency on a downward trajectory.

Brent crude oil was trading at around $88/barrel throughout the week while it hit a seven-year high of above $90 a barrel on Wednesday, as the market balanced concerns about tight worldwide supply with expectations the US Federal Reserve will soon tighten monetary policy. Pakistan is the net importer of petroleum products to meet domestic energy demands. The country’s oil bill sharply increased by 113.39 per cent to $10.18 billion during the first half (July-December) 2021/22, as compared with $4.77 billion in the corresponding half of the last fiscal year.

The liquid foreign exchange reserves of the country plummeted by $867.6 million to $22.48 billion by the week ended January 21, 2022, as compared with $23.35 billion by the week ended January 14, 2022.

The decline in the forex reserves came as the country made payments in the import bill and external debts. The import bill maintained a growth of 69 per cent to $40.58 billion during the first half (July-December) of the fiscal year 2021/22, compared with $24.45 billion in the same half of the last fiscal year.