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March 27, 2020

Coronavirus pummels rupee to all-time low at 166.13/dollar

Business

March 27, 2020

KARACHI: Rupee plummeted to an all-time low at 166.13 against the US dollar in the interbank trade on Thursday as coronavirus shocks kept the foreign currency supply tight amid drying up inflows.

The rupee slid 2.8 percent or Rs5.08 from the Wednesday’s close of 161.60 due to interest rate cuts and repatriation of hot money amid increasing uncertainty in global markets fuelled by coronavirus outbreaks. The rupee hit a record low of 167.50 in the intraday trade, surpassing its earlier record low of 164.05 recorded in June last year.

A currency dealer said there was a heavy dollar demand. “Importers were on the buying side and there were not much of remittances and exports proceeds. This caused shortage of the greenback in the market,” the dealer said, requesting anonymity. “The worries about tightening liquidity due to slowdown in the export proceeds after the country sent into a lockdown amid coronavirus outbreak boosted demand for the greenback.” The dealer added that the withdrawal of advance payment limit on certain imports pushed the demand for the dollar up in the market. While the market is expecting a much-needed intervention to rescue the battered rupee, the central bank seems to have no intention to step in.

“Ongoing higher volatility in the currency is driven by supply and demand conditions in the market,” the chief spokesman of the State Bank of Pakistan (SBP) told The News. The official declined to comment any further.

The SBP slashed the interest rate by cumulative 225 basis points to 11 percent in a week. The rupee remained stable, trading in the range of 154-155 between October 2019 and March 2020 under the market-based exchange rate regime. It has started depreciating from earlier this month and lost a cumulative Rs13.

Eman Khan, an analyst at data firm Tresmark said there were three reasons for a rupee slump: “rate cut, relief package and repatriation of hot money”.

“If the rupee trades over 5 percent of pre-MPC (monetary policy committee) levels, we will be expecting the central bank to intervene to maintain order in the forex markets,” Khan said. “There were only dollar buyers and hardly any sellers, and buying of even small amounts made the rupee jump by 25-30 paisa.”

Khan wishes the central bank to “intervene now and calm markets’ nerves before this snowballs in to something big, by providing dollar liquidity”.

“There’s been a sharp decline in rupee, and if this continues it can only further aggravate the economic conditions,” she said. “There will be a further slowdown and inflation will go up.”

Malik Bostan, president of Forex Association of Pakistan said there were no buyers of dollar in the open market and the trading was confined to a very narrow range. The rupee closed firmer at 160 to the dollar in the open market. “There was a premature selling by foreign investors in government securities due to coronavirus pandemic, which put pressure on the rupee,” Bostan said.

Foreign investors divested $71 million worth of treasury bills on March 25. With this repatriation, total divestment during March reached $1.558 billion. However, net investment in T-bills since the start of this fiscal year stood at $1.54 billion, according to the central bank.

Former finance minister Salman Shah said investors in equity markets are selling in panic as they are in search of safe heaven assets globally.

“Foreign investors are divesting investments from emerging markets and investing in advanced economies due to stimulus in the US and Europe,” Shah said. “Hot money outflows is not our real challenge but to contain the domestic economy from the fallout of coronavirus, then our economic fundamentals will improve and the rupee as well.”