close
Thursday March 28, 2024

Rupee plunges to 150.10 ahead of budget on depreciation fears

By Erum Zaidi
June 11, 2019

KARACHI: The rupee dropped by 1.0 percent or Rs1.50 in the interbank market on Monday, as dollar demand from importers and fears of further currency depreciation amid IMF’s executive board approval for $6 billion Extended Fund Facility by month’s end put pressure on the currency, traders said.

The rupee traded as low as 151 per dollar. It, however, ended the day at 150.10 to the dollar, lower than last Monday’s close of 148.60. “The dollar demand was there throughout the day. We saw importers coming into the market to buy dollars,” a trader said.

Yaqoob Abubakar, an analyst at Tresmark, an application that tracks financial markets, said the dollar regained Rs1.50 against rupee in the interbank market in Monday’s session due to higher demand for import and corporate payment since the foreign exchange market opened after a week.

“The market is expecting further depreciation, as rupee appreciated last week on the back of remittances and more tax measures to be announced in the budget,” Abubakar said. The rupee closed at 150.50 against the dollar, 1.14 percent weaker in the open market. It had ended at 148.80 in previous session.

This fresh slide comes before the government is due to unveil its budget for fiscal year 2019/20 on Tuesday amid concerns that Islamabad will adopt a tougher budget

and tighter monetary policy to guard against the risk of overheating and to bear down on inflation in line with its comments with the IMF to be eligible for a 39-month EFF

programme.

The IMF has asked the government to adopt a market-driven exchange rate. Pakistan and the IMF had reached a staff level agreement last month subject to IMF management approval and to approval by the executive board and subject to the timely implementation of prior actions and confirmation of international partners’ financial commitments.

Analysts said the present movement of rupee showed demand and supply conditions in the currency markets. “We see two to four percent devaluation in rupee on short-term basis,” Mohammed Sohail, the chief executive at Topline Securities, said. “An approval from the IMF’s board, which is expected by the end of this month, will determine future course for the domestic currency.”

Sohail also said that the fresh spell of political uncertainty stemming from the arrest of former president Asif Zardari would not hit investor sentiment. However, the overall economic conditions would be a major driver for rupee in times to come.

Forex Association of Pakistan President Malik Bostan said the rupee weakened in the kerb dealings tracking losses in the interbank market and drop in domestic shares. “There was no extraordinary demand for the greenback in the open market,” he said. “We had enough inflows to cater the market demand.”

NBP Funds, in its note to clients said that the IMF has demanded free float of currency. Large currency adjustment during the last 12 months has brought the latest real effective exchange rate reaching to 104.41 as of March 2019.

After a further five percent devaluation during May 2019, the rupee has reached near its equilibrium value. However, considering a still large current account deficit in fiscal year 2020, some further currency devaluation cannot be ruled out, it said.