Weak economic indicators end rupee recovery

KARACHI: The Pakistani rupee dropped 99 paisas against the dollar on Monday as the forex reserves of the country hit a 22-months low amid foreign debt repayments, dealers said.

The rupee shed 99 paisas to close at Rs182.54 to the dollar from Saturday’s closing of Rs181.55 in the interbank foreign exchange market.

The local currency took a dip after making gains during the previous one week on account of an unprecedented increase in the key policy rate by the State Bank of Pakistan (SBP) coupled with other measures to curb the import bill of the country.

The central bank, on April 7, announced a significant increase in the key policy rate by 250 basis points to 12.25 per cent from 9.75 per cent in an emergency meeting of the Monetary Policy Committee (MPC).

The central bank also imposed 100 per cent cash margins on 177 items in a bid to curb their imports, which helped easing pressure on the rupee and reducing trade and the current account deficits.

The local currency hit the historic low of Rs188.18 on April 7, as the country faced the worst political crisis resulting in uncertain economic conditions.

Even though the political crisis has been resolved which gave enough support to the value of the rupee during the previous week, the significant decline in the foreign exchange reserves of the country is denting rupee recovery against the greenback, the dealers added.

Pakistan’s foreign exchange reserves hit a 22-month low after falling for nine consecutive weeks to $17.03 billion.

According to the data released by the SBP, the foreign exchange reserves of the country fell $449 million to $17.028 billion by the week ended April 8, 2022, compared with $17.477 billion a week ago.

The foreign exchange reserves were at $17.971 billion by the week ended June 26, 2020.

Pakistan’s foreign exchange reserves have declined $10.23 billion in the last seven months, owing to extreme pressure of the dollar demand for import payments and external repayments of government debt.

The ever widening current account deficit, volatile global commodity prices after Russia, one of the biggest oil and gas producer countries, went on a war with Ukraine, which also played its part in the depreciation of the local currency.

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 Rs25 or 15.97 per cent from Rs157.54 to dollar on June 30, 2021 to the current level of Rs182.54.

At the open market, the buying and selling of the dollar was recorded at Rs180.5 and Rs182 at 3:30pm PST.