Rupee sags to another record low of 167.9/dollar

KARACHI: Rupee hit another record low of 167.89 to the US dollar in the interbank trade on Tuesday as there was no respite in foreign outflows from debt market, compounded by a fear of delay in third tranche of IMF’s loan.

The rupee lowered 0.67 percent or Rs1.13 from 166.76 in the previous session. In the open market, the rupee closed at 168 compared with 167.

Market participants said the dollar rally was mainly foreign driven. “There was no heavy dollar demand as such, but panicky foreign selling in the fixed income markets drove the rupee down,” a currency dealer said. Analysts said around $150 million worth of treasury bills were sold on Monday alone, and might have been triggered by the International Monetary Fund’s (IMF) skipping the review of third installment.

“We’ve seen a steady flight of investment, but this could be slowing down,” a trader said requesting anonymity. “However, we expect to hear big news on the multilateral front which may be comforting for the markets.”

The central bank’s data showed that net treasury bills’ selling position of foreign buyers stood at $73 million on April 6 (Monday). Net buying was recorded at $1.2 billion so far this fiscal year.

“Global investors have pulled out of emerging markets in a big way,” Eman Khan of Tresmark, a terminal that tracks financial markets said. “We estimate about $375 million divestment from government securities in the last 10 days, putting pressure on rupee.”

The IMF is likely to delay the release of its next tranche of $6 billion extended fund facility to the country agreed in July last. The government approached the IMF for another financial assistance of $1.4 billion under the fund’s rapid financing instrument to overcome challenges posed by the coronavirus crisis. The country wants to reschedule debt repayments of multilateral agencies and seeks further financing of $3-4 billion.

“We expect the SBP (State Bank of Pakistan) reserves to fall to $8 billion by Jun 2020, if none of the above support materialises, as debt repayments over the next 3 months stand at around $4 billion,” brokerage Topline Securities said in a report. “We foresee a balance of payments issue over the next 3-12 months (even though current account balance will be more than manageable), if Pakistan is unable to muster reasonable support of the IMF, multilateral agencies and friendly countries.”

The SBP’s foreign exchange reserves slid more than 12 percent in three weeks of March. As of March 27, the reserves stood at $11.2 billion compared with $12.8 billion as of March 6.

Outbreak of Covid-19 soured most of the projected proceeds at the start of the year, including issuance of eurobonds/panda bonds ($2-3 billion), privatisation of power plants ($1.5-2.5 billion) and increase in foreign investment in T-bills ($1-2bn).

“We have already seen an outflow of almost $2 billion under foreign investment in treasury bills during the last couple of months, along with around $150 million net outflow from the stock market,” Topline Securities added. “We have revised our PKR/USD assumption for June 2020 to Rs170 (from Rs158) and for June 2021 to Rs180 (from Rs165).”

The rupee weakened 8.76 percent since March after the State Bank cut policy rate by 225 basis points, which triggered outflows from the local currency bonds and equities.

“In spite of the interest rate cut, stimulus, declining reserves and flight of foreign investment, we expect dollar gains to be capped at 170 in the short term,” Khan of Tresmark said. “The pandemic will continue to be the dominant factor for all price actions.”