Rupee falls sharply against dollar on economic uncertainty

• The rupee sharply declined by Rs4.61 against the dollar on Wednesday.
• The import bill for January 2023 has been recorded at $4.856 billion.
• Local currency recorded a historic low of Rs276.58 against the dollar on February 3.

KARACHI: The rupee sharply declined by Rs4.61 against the dollar on Wednesday, owing to the economic uncertainty after Moody’s downgrade the country’s rating, dealers said.

The rupee fell to Rs266.11 against the greenback from the previous day’s closing of Rs261.50 in the interbank foreign exchange market.

It slipped Rs1.58 against the dollar on Tuesday, owing to the fears of a delay in the loan programme under the Extended Fund Facility of the International Monetary Fund (IMF).

On Tuesday, Moody’s Investors Service downgraded the government of Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to Caa3 from Caa1.

Moody’s has also downgraded the rating for the senior unsecured MTN programme to (P) Caa3 from (P) Caa1. However, it has also changed the outlook to stable from negative.

The decision to downgrade the ratings is driven by Moody’s assessment that Pakistan’s increasingly fragile liquidity and external position significantly raises the default risks to a level consistent with a Caa3 rating.

Besides, the rupee also fell due to a delay in the IMF programme because of non-compliance by the country with the loan conditions.

The State Bank of Pakistan (SBP) has convened a monetary policy committee ahead of schedule to fulfil one of the IMF conditions to finalise the staff-level agreement.

The central bank announced that the meeting of the Monetary Policy Committee (MPC) would be held on March 2, 2023, which was actually scheduled for March 16, 2023.

The local currency recorded a historic low of Rs276.58 against the dollar on February 3, 2023. The country’s foreign exchange reserves depleted sharply during the last one year and presently are at an alarming level. However, in the last two weeks, the official forex reserves slightly increased, giving some breathing space to the local currency.

The official foreign exchange reserves of the State Bank of Pakistan (SBP) increased $65 million to $3.258 billion by the week ended February 17, 2023, compared with $3.193 billion a week ago. The current level of the official foreign exchange reserves are only to provide import cover for around two weeks, or 19 days.

The import bill for January 2023 has been recorded at $4.856 billion, as per the Pakistan Bureau of Statistics (PBS). The benchmark foreign exchange reserves of a central bank should be at a level to provide three months of import cover.

The official foreign exchange reserves of the SBP fell sharply to an almost nine-year low. Previously, the official forex reserves of the SBP were seen at $3.19 billion in February 2014.

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