Rupee declines

The rupee ended down after falling to its lowest in seven months on Wednesday on strong dollar demand from importers and foreign debt investors and an overall weakness in the currency, dealers said.

Rupee fell 98 paisa to end at Rs158.42 to the dollar from the previous day’s closing of Rs157.44 in interbank foreign exchange market. The exchange rate in open market also witnessed decline in local unit by Re1. The cash-ready market ended at Rs158.00 to the dollar from last day’s closing of Rs157.00.

The local unit was seen at the current level in early August 2019. Domestic currency lost value of around 2.7 percent against the greenback during last three trading sessions.

It was closed at Rs154.24 on Friday March 6, 2020. Dealers said the rupee continued to fall for the third consecutive day on the back of outflow of funds from local debt markets in anticipation of a policy rate cut next week.

The monetary policy for the next two months is due on March 17. A poll conducted by brokerage Topline Securities showed that the market is expecting around 50bps – 200bps cut in policy rate.

Analysts, however said any sharp cut in policy rate might discourage foreign investment in debt market. Tax firm Tola Associates in its latest report predicted “sudden shift in the sentiment of overseas investors might trigger crisis going forward”.

“Sudden shift of overseas investors in the wake of anticipated cut in interest rates is not going to end-soon, effects of hot money funds can trigger crisis going forward,” the report noted. Foreign funds have so far withdrawn $269.6 million of investments from government papers in the current month, the State Bank of Pakistan’s data showed.

Government securities attracted a record over $4 billion in overseas cash during the current fiscal year of 2020 as Pakistan’s benchmark policy rate is presently at 13.25 percent.