Oil price fluctuation to set rupee direction

KARACHI: The movement of the rupee against the dollar will largely depend on the oil price fluctuation in the international market and import payments related to the holy month of Ramazan, analysts said.

The oil prices in the international markets are highly volatile since the Russia-Ukraine war began on February 24, 2022. The benchmark Brent crude is currently trading at over $111/barrel (March 11, 2022 at 3:30pm PST), which touched around $140/barrel a few days ago.

Pakistan spent $11.69 billion for the import of petroleum products during the first seven months (July-February) 2021/22, compared with $5.64 billion in the corresponding period of the last fiscal year, showing an increase of 107 per cent.

Similarly, the dollar demand will rise due to the imports related to the holy month of Ramazan. The country usually imports palm oil and soyabean oil for domestic consumption. The edible oil has also witnessed a sharp increase in prices during the last few months.

The high prices of commodities in the international market also jacked up the total import bill of the country. The import bill recorded a 55 per cent increase to $52.50 billion during the first eight months (July-February) 2021/22, compared with $33.86 billion in the corresponding months of the last fiscal year.

The mounting import bill also resulted in massive widening in the current account deficit. The current account deficit of the country reached $11.58 billion during the first seven months of the current fiscal year, compared with a surplus of $1.03 billion in the corresponding period of the last fiscal year.

Further, the fall in the foreign exchange reserves may also put pressure on the rupee value. The liquid foreign exchange reserves of the country slipped $206 million to $22.669 billion by the week ended March 4, 2022 as against $22.875 billion a week ago. However, remittances related to Ramazan and Eid festival may support the rupee in the coming days.

On the inflows front, the workers’ remittances posted an increase of 7.65 per cent to $20.14 billion during the first eight months of the current fiscal year, compared with $18.71 billion in the same period of the last year.

The exports also posted a growth of 26 per cent to $20.54 billion during the period under review, compared with $16.32 billion in the corresponding period of the last fiscal year.

The rupee remained under pressure since the start of the current fiscal year. It lost Rs20.97, or 13.31 per cent, from Rs157.54 to a dollar on June 30, 2021 to Rs178.51 on March 11, 2022.