KARACHI: A Rs1.81 decline in the inter-bank market during intra-day trading due to current account deficit pressure dragged the Pakistani rupee to a record low on Friday against the US dollar, with the exchange rate sliding to Rs175.73.
The steep fall was attributed to the panic accumulation of dollars over concerns regarding the supply of the greenback.
The local currency depreciated around Rs1.54 against the greenback to settle at Rs175.73 on Friday. Cumulatively, the local currency has lost around Rs5.76 during last seven days.
Analysts believe the demand for the foreign currency stood higher than supply amid an increase in import payments, rising global commodity prices and uncertainty about the resumption of the IMF loan programme.
The local currency last dropped to a record low of Rs175.26 against the US currency on October 26.
The government has decided to let the market-based, flexible rupee-dollar exchange rate mechanism determine the value of the rupee against the US dollar, keeping in view the demand and supply of foreign currency in the inter-bank market.
The inter-bank market mostly meets the demand for import payments through receipts of export earnings and workers’ remittances sent home by overseas Pakistanis.
Speaking to Geo.tv, Pakistan-Kuwait Investment Company Head of Research Samiullah Tariq said that the local currency has once again plunged due to an expected current account deficit.
“The real effective exchange rate (REER) - the country’s cost of external trade - has dropped to 93 points on the index, suggesting the rupee is trading around fair values these days and there is hardly any space left to drop more,” Tariq said.
Earlier, Arif Habib Limited head of research Tahir Abbas had said that the government needs to take immediate action because uncertainty has started prevailing in the market.
“Whenever there is uncertainty in the market, significant fluctuations are observed in the local currency,” the analyst had said.
Abbas had added that depreciation in the rupee also creates inflationary pressure, which is bad for the economy as surging inflation means that the import bill will widen and increase demand for the dollar.
“As soon as clarity regarding IMF is received, the marker will reverse its trend,” he had predicted.
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