Rupee makes record single-day recovery

KARACHI: The rupee made the record single-day recovery of Rs3.5 on Friday due to a massive hike in the key policy rate by 2.5 per cent announced by the State Bank of Pakistan (SBP) a day ago.

The exchange rate ended at Rs184.68 against the dollar from the previous day’s closing of Rs188.18, the highest level of the dollar, in the interbank foreign exchange market.

The central bank, in a surprise move, announced a massive increase in the key policy rate by 250 basis points to 12.25 per cent from 9.75 per cent.

The announcement came in an emergency meeting of the Monetary Policy Committee (MPC) to announce the policy rate, where the SBP said that the rupee depreciated around 5 per cent against the dollar since the last policy announcement.

The dealers said the local unit showed significant recovery, amid a sharp rise in the policy rate to 12.25 per cent to curb the demand and to provide the much-needed support to the local currency.

The depleting forex reserves in the face of the rising debt repayments and import payments to meet the local demand of the country, coupled with the political and economic uncertainties, as the opposition moved a no-confidence motion against Prime Minister Imran Khan and the dissolution of the National Assembly by the President of Pakistan kept the rupee under pressure during the last month, they added.

The ever-widening current account deficit, volatile global commodity prices, amid the geopolitical tensions around one of the biggest oil and gas producer countries, i.e., Russia also played its part in the depreciation of the local currency.

Pakistan’s foreign exchange reserves fell to $17.477 billion by the week ended April 1, 2022. The country’s foreign exchange reserves hit an all-time high of $27.228 billion on August 27, 2021.

The foreign exchange reserves are declining for the last eight consecutive weeks and recorded a fall of $6.24 billion since February 4, 2022, when the reserves were at $23.721 billion.

The ballooning current account deficit is another reason for escalation in the dollar value. Pakistan’s current account deficit ballooned to $12 billion during the first eight months (July-February) 2021/22 against a surplus of $994 million in the corresponding months of the last fiscal year.

Although the current account deficit narrowed to $545 million in February 2022, compared with the deficit of $2.53 billion in January 2022, the scheduled external repayments are still a threat to the balance of payment.

The local currency remained under pressure since the start of the current fiscal year. The rupee lost Rs27.14 or 17.22 per cent from Rs157.54 to dollar on June 30, 2021 to the current level of Rs184.68.

At the open market, the buying and selling of the dollar was recorded at Rs186.3 and Rs188.05 at 3:45pm PST.