KARACHI: The rupee weakened for a fifth day against the US dollar, as banks and importers scrambled to secure greenbacks to pay for overdue shipments, dealers said on Thursday.
In the interbank market, the local unit dropped 1.34 rupees or 0.47 percent to close at 285.14 against the dollar.
However, the rupee gained 50 paisas to settle at 289.50 per dollar in the open market. Traders said that sustained dollar buying by banks and importers after the backlog of imports began to clear, hurt the rupee.
Around 2,500 of the 6,000 import containers that were held at the city’s ports because banks refused to open letter of credits on account of a shortage of foreign exchange have been released, according to traders. The rupee, they stated, was under pressure in the interbank market as a result.
“With SBP’s instructions to banks to manage import payments themselves, banks are in a race to fund their nostros, eagerly buying dollars. Rates should consolidate at these levels though, as SBP would want some kind of a ceiling,” said Komal Mansoor, head of research at Tresmark.
On June 29, Pakistan secured a staff-level agreement with the International Monetary Fund (IMF) on a $3 billion stand-by arrangement (SBA). Since then, the rupee had strengthened. However, recent sessions have put pressure on the currency.
The IMF’s board last week approved a $3 billion SBA for Pakistan for a period of nine months. Of this, $1.2 billion has already been disbursed, while the remaining money is subject to two quarterly reviews in November and February.
One of the main areas of focus of the IMF’s programme is the restoration of a market-determined exchange rate and the establishment of effective foreign exchange markets to absorb external shocks and end foreign exchange shortages.
To address external imbalances and rebuild foreign reserves, it is essential to permanently cease the use of administrative controls and actions to manage the current account and return to a market-determined exchange rate, according to the IMF’s country report on Pakistan.
The reliance on administrative measures to manage imports since May 2022 and the tightly controlled exchange rate since September 2022 have had detrimental effects on economic growth and worsened external pressures by discouraging inflows, particularly remittances. These interventions have eroded public confidence in the exchange rate system, it said.
Going forward, it is crucial to adopt a market-determined exchange rate system that allows the exchange rate to act as a shock absorber and is free from any formal or informal guidance or restrictions, it added.