Rupee rout continues for third day, hits new record low

KARACHI: The rupee dropped to a new all-time low for a third straight session in the open market on Tuesday amid a widening gap between demand and supply of dollars.

The domestic currency traded at 308 per dollar, down from 305 on Monday. During the session, the local unit decreased by 3 rupees, according to the rates issued by the Exchange Companies Association of Pakistan (ECAP).

In the interbank market, the rupee also continued to lose ground ending at 287.15 to the dollar, 0.21 percent weaker than the previous close of 286.56.

The rupee, according to analysts, is under pressure in the open market and interbank markets. Administrative measures are used to control the interbank rate, however, the open market rates dramatically rose and were quoted in the 310–315 range in some places.

The dollar shortage is to blame for the rupee's depreciation. Due to the ongoing political upheaval, customers are hesitant to sell dollars to exchange companies. Banks are also not providing exchange companies with cash dollars.

The gap between currency rates in the interbank and open markets has increased to 20.85 rupees. “The gap between official and kerb is widening, which will discourage remittances from official channels,” said Chase Securities in a note.

There is a high demand for dollars in the open market due to requirements of travelers in summer vacations, pilgrims as Hajj flights have started, demand from businesses as some imports are being funded through open markets, and hoarding by the general public on fears of default which are now being widely quoted in media reports, according to the note.

“There are large debt repayments due in the month of June, the bulk of which will be rolled over however, in case of any repayment or lower remittances/export numbers, the current account deficit has to be funded from the available reserves which are already less than 1-month import bill,” it said.

If the IMF programme was taking some time, commitments from friendly countries of $3 billion should start flowing in as it would support the reserves and ease off some pressure, the note stated.

Pakistan’s foreign exchange reserves held by the central bank fell by $72 million to $4.3 billion in the week ending May 12. The reserves are enough to cover even less than a month’s import bill of the country.

Analysts believe that until the budget for the fiscal year 2023-24 is unveiled, there may not be any progress in resumption of the IMF bailout. Meanwhile, the rupee is hitting record lows as fears of default in absence of IMF bailout programme are increasing.