Rupee sinks to record low amid uncertainty on IMF loan

October 19, 2021

KARACHI: The rupee skidded to an all-time low on Monday amid increasing uncertainty over a $6 billion International Monetary Fund loan tranche discussion.The rupee closed at a life-low of 172.78...

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KARACHI: The rupee skidded to an all-time low on Monday amid increasing uncertainty over a $6 billion International Monetary Fund (IMF) loan tranche discussion.

The rupee closed at a life-low of 172.78 per dollar, after hitting 173 levels in the early deals, and 0.93 percent weaker than its previous close of 171.18. At its record low, the rupee has slumped 13.5 percent from its high reached in May this year. In the open market, the rupee ended at 173.50 per dollar, compared with 171.80 on Friday.

“The pressure in the currency market is primarily due to the ambiguity on the IMF programme as the market hates uncertainty,” said analyst Tahir Abbas of Arif Habib Limited. “Going forward, with the successful resumption of the IMF programme, the pressure is expected to ease off.”

The government, vowed to seek a revival of the IMF’s Extended Fund Facility, so far failed to strike staff-level agreement facility. The IMF programme is widely seen as the way Pakistan can unlock foreign exchange liquidity and multilateral financing, and gain in terms of the Financial Action Task Force.

Shaukat Tarin, advisor to the Prime Minister on finance along with his team is in Washington since October 4 to negotiate with the Fund for the release of the $1 billion loan tranche.

Pakistani finance managers are expected to prolong their stay in Washington for a couple of more days for making last-ditch efforts, to reconcile and evolve consensus on the Memorandum of Economic and Financial Policies and completion of 6th and 7th reviews.

The finance ministry however dismissed reports that talks from October 4 to 15 for the release of a $1 billion loan tranche were inconclusive. “Negotiations between Pakistan and IMF are moving forward positively. No timeframe was set at any stage for the conclusion of the talks,” a statement issued by finance ministry said.

In June, a similar round of talks between Pakistan and the IMF failed to bring agreement on conditions for the tranche. The uncertainty regarding the IMF program sparked fresh worries and traders priced in the volatility and more weakness in the local currency.

Besides, there is an increasing likelihood the country’s import bill will swell further in coming months due to multi-year high global oil and commodity prices. The volatility in the global commodity prices could pose pressure on the country’s fragile current account balance.

“As per market participants the foreign currency market is closed tomorrow therefore there were high import payment demands today after the weekend,'' said Yaqoob Abubakar from Tresmark, an application that tracks financial markets.

Analysts see the outlook for the rupee weaker in the near-term as there is an all-round demand coming in from oil and manufacturing importers due to acceleration in the economic recovery and the concessionary lending scheme like temporary economic refinance scheme from the State Bank of Pakistan to foster investment activities even in the tough times of the Covid-19.

The prices of global crude oil, edible oils, food commodities, coal, and metal products have added to imported inflationary pressures and may force the central bank to hike the interest rates further next month.

In September, Fitch Ratings also revised down its forecasts for the rupee for both this year and next due to a variety of factors including an increased flow of dollars into Afghanistan, projecting an average rate of Rs180 versus a previous forecast of Rs165 in 2022.

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