Rupee: Worst month since 1972

• The largest monthly decrease in history was in July, when the local currency fell by about Rs34.5, or more than 14 percent.
• State Bank of Pakistan’s foreign exchange holdings have decreased by $7.811 billion, reaching $8.575 billion in July.
• Heavy imports and rising commodity costs are to blame for the current account gap’s recent increase.

The Pakistani rupee experienced its worst month since 1972 amid a shortage of dollars and worries over a delay in an International Monetary Fund (IMF) rescue program, according to The News on Saturday.

The largest monthly decrease in history was in July, when the local currency fell by about Rs34.5, or more than 14 percent, versus the US dollar due to fears of a potential default and record-low foreign exchange reserves.

It should be mentioned that it is the second-worst global loss of the month after the value of the currency of Ukraine.

The nation is attempting to allay concerns that it could follow Sri Lanka into default this year as fresh political uncertainty following the Punjab by-elections cast doubt on its ability to secure its IMF loan tranche.

Ankur Shukla, a Mumbai-based analyst for Bloomberg Economics, asked: “What’s causing the recent plunge? Politics, according to the finance minister, are to blame. The governor of the central bank points to the rising dollar.

The underlying motivation is simpler: concern that the nation might not get IMF assistance swiftly enough to avoid following Sri Lanka into default.

The sharpest loss in the rupee demonstrates the mounting worries about the nation’s poor foreign liquidity position. Since February, the State Bank of Pakistan’s (SBP) foreign exchange holdings have decreased by $7.811 billion, reaching $8.575 billion in July, or almost six weeks’ worth of imports.

The current account deficit, meanwhile, increased from $2.8 billion to $17.4 billion in July-June (the fiscal year 2021-22) from the previous year. Heavy imports and rising commodity costs, particularly for oil, are to blame for the current account gap’s recent increase.

In response to market unease over political unpredictability postponing the IMF rescue for the country, the rupee, and the nation’s dollar-denominated bonds have fallen.

By getting billions of dollars from the Washington-based lender and countries like China and Saudi Arabia, Pakistan is aiming to ease worries that it may follow Sri Lanka into default this year.

In a research report, Arif Habib Limited claimed that the political risks and shifting paradigms had a negative impact on foreign investors’ and creditors’ trust, which had a significant negative impact on the currency.

“Although we think the rupee still has a long-term tendency to depreciate, in the near future, we anticipate some stability to be restored. We credit SBP efforts to reduce market speculation as well as inflows from bilateral and multilateral creditors, IMF inflows, and strengthening of some macroeconomic factors for this short-term stability.

Investors’ nerves are calmed by news that Pakistan’s army leader has asked the US to help expedite $1.2 billion in additional funding for Pakistan and by anticipation of early elections.

The rupee was able to recoup some of its losses and ended Friday at 239.37 to the dollar. On Thursday, it reached a low of 239,94. The rupee increased 0.24 percent from one day to the next.

The local currency recovered after experiencing a 13.31 percent decline in the previous ten trading sessions. The rupee, meanwhile, continued to experience intense pressure on the street market. To settle at 244 versus the dollar, it lost 4 rupees.

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