Rupee ends down on first trading day of 2023

KARACHI: The rupee started the new year weaker against the dollar in the interbank market, weighed down by dwindling foreign reserves and dried dollar inflows, dealers said.

In the interbank market, the local unit closed at 226.94 per dollar, compared with the previous close of 226.43, falling by 0.22 percent.

The domestic currency lost 50 paisas to settle at 236 versus the greenback in the open market.

“We see the rupee will continue to lose ground on the back of frequent decline in the foreign exchange reserves and lack of external financing,” an analyst said.

An unsustainable foreign debt burden and complacent fiscal reform effort, that threatens the revival of the IMF programme, will keep the rupee under duress, according to a report from Alfalah Securities.

The rupee has been the second worst performing currency among its Asian peers, declining 28 percent against the dollar in 2022, mainly on account of the government’s slow progress in rolling over/securing foreign inflows from international lenders.

The gross external financing requirements for FY2023 are estimated at a massive $27 billion, with foreign debt repayments of U$21 billion and a current account deficit of $6 billion. At $5.8 billion (as of December 23, 2022) foreign exchange reserves provide just one month’s import cover, the report said.

The government continues to delay IMF preconditions, fearing further loss of political capital, since elections are scheduled to be held in 2023.

The report stated that interbank (Rs226/dollar) and informal open market exchange rate (Rs258/dollar) had an abnormally high spread of Rs30/dollar, which was channeling remittances away from formal channels into grey market. “Exporters are delaying the transfer of export receipts. We see interbank rate catching up to curb rate by FY2023 end,” it said.