Rupee stability linked to current account balance

Shahnawaz AkhterWeb Editor

24th Jul, 2021. 02:59 pm
Remittances Exceeds $2 billion For The Sixth Consecutive Month

KARACHI: Mounting current account deficit may pose a challenge to the rupee stability in the coming days, despite record inflows of export receipts and workers’ remittances.

The local unit depreciated mercilessly against the dollar during the last couple of weeks. The local currency lost around Rs4.78 against the greenback during the first 23 days of the current fiscal year.

The current account posted an unexpected $1.64 billion in June 2021. The monthly current account deficit deteriorated the full-year balance of payment.

Analysts at Topline Research said the current account deterioration in June 2021 was largely due to an increase in the imports of goods, which recorded a rise of 27 per cent MoM, or $1.363 billion, to clock-in at $6.322 billion.

After the higher deficit in June 2021, the analysts are now expecting the current account deficit in the range of $7 billion to $8 billion (2.2 per cent to 2.6 per cent of GDP) in 2021/22, compared with the earlier estimate of $4.4 billion for the year.

In the last five years (FY17/21) and 10 years (FY12/FY21), the current account deficit has averaged at $10.2 billion (3.5 per cent of GDP) and $6.9 billion (2.7 per cent of GDP) per annum, respectively.

The analysts estimated the exchange rate rupee/dollar would be ranging in between 165 and 170 by December 2021.

In a recently conducted poll by Topline Research, the majority of the participants (57 per cent) expect the rupee/dollar parity to range in between 160 and 165 by the end of 2021, while 37 per cent expect the rupee/dollar to remain between 165 and 170.

However, the analysts said the rupee may find support, as imports may eventually slow down on the back of a market-driven exchange rate regime; resumption of the International Monetary Fund (IMF) programme; and the potential monetary tightening.

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