Rupee volatility likely to continue

Shahnawaz AkhterWeb Editor

04th Sep, 2021. 08:35 pm
Dollar hits a 10-month high against the rupee

KARACHI: Uncertainty in the money market is likely to continue next week, as official trade figures for the first two months of the current fiscal year revealed significant widening in trade balance.

The trade balance for the first two months (July–August) of the current fiscal year posted a widening of deficit by 120 per cent. The trade deficit stood at $7.49 billion during the first two months of the current fiscal year, compared with $3.4 billion in the corresponding months of the last fiscal year.

The country needs dollars to ease the external payment pressure due to the inflows of the greenback in the shape of export receipts. The exports of the country registered 27.59 per cent growth to $4.57 billion during the first two months of the current fiscal year, compared with $3.58 billion in the corresponding period of the last fiscal year.

Although the exports exhibited significant growth to support the rupee, a sharp increase in import bill offset the impact of exports on the local unit. The import bill posted a 72.6 per cent increase to $12.06 billion during July-August of the current fiscal year, compared with $6.99 billion in the same period of the last fiscal year.

At the current pace, the exports of the country are increasing with a monthly average of $2.28 billion and the import bill is growing with a monthly average of $6 billion. This shows the trade deficit with this rate would balloon to around $44.6 billion, with the import bill at $72 billion and exports at $27.36 billion.

The widening of the trade deficit and slower pace of inflows of remittances would put pressure on the balance of payments. The current account deficit for July was at $773 million, as reported by the State Bank of Pakistan. Meanwhile, the remittances maintained the pace of over $2 billion/month in July 2021.

The SBP said with the inflows of $2.71 billion in July 2021, the workers’ remittances continued their strong trend, remaining above $2 billion for the 14th consecutive month. This is the second-highest-ever level of remittances reported in July. However, at the same time, it is important to highlight that the remittances showed a decline of 2.1 per cent over the same month last year, the SBP said.

Another major concern regarding the rupee stability is political uncertainty and war-like situation in Afghanistan. The US forces have left Afghanistan and the Taliban took over the country. The US has frozen the dollar accounts of Afghanistan, stopping the supply of the foreign currency with the exit of the US army. This has created severe shortage of the greenback in the neighbouring country. It is believed the foreign currency would smuggle to the neighbouring country through bordering cities of Pakistan.

In the outgoing week, the rupee remained volatile. It witnessed a continuous decline against the dollar for the four consecutive days during the week. However, it made a gain on the last trading day.

The exchange rate started the week at Rs165.62 against the dollar on August 30, 2021 and closed the week at Rs166.91 against the dollar on September 3, 2021.

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