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June 24, 2020

Rupee falls to 2.5-month low of 167.7 on unceasing outflows

Business

June 24, 2020

KARACHI: The rupee fell to almost two-and-a-half month low of 167.65 against the US dollar in the interbank trade on Tuesday as investors and companies rushed to cover a shortage of the US currency before the fiscal year end, dealers said.

In the interbank market, the rupee closed at 167.65 to the dollar after falling to 167.77, a level last seen on April 8. The rupee had settled at 166.58 on Monday. The rupee dropped 0.64 percent or Rs1.07 against the dollar during the session.

Currency dealers said the fiscal yearend demand of dollars from importers and companies weighed down the already weakening rupee. The currency has declined 2.8 percent so far this month.

“The rupee weakened as importers and corporates bought dollars for payments,” said a currency dealer. “It is the fiscal yearend, so there is a large demand for the dollar in the market.”

The rupee fell to 168 versus the greenback from 167 in the previous session in the open market.

The domestic currency has been under pressure due to falling foreign exchange reserves and increasing outflows amid foreign debt repayments. The rupee fell 2.8 percent or Rs4.55 against the dollar since the start of June. It had closed at 163.10 on May 29.

“Going forward much-needed dollar inflows through bilateral multilateral sources may give some support to PKR in July,” said Mohammed Sohail, chief executive officer at Topline Securities. “June-end payments affect the local currency.”

Another currency dealer agreed that the rupee would continue to post losses unless substantial foreign inflows are materialised.

Pakistan is expected to receive multilateral inflows sometime this week, which could help strengthen the rupee and the foreign exchange reserves. Last week, the country signed a $1.5 billion loan agreement with the World Bank, Asian Development Bank and Asian Infrastructure Investment Bank to strengthen coronavirus response.

The central bank’s foreign exchange reserves came under pressure recently due to external debt repayments. The SBP’s reserves fell to $10.1 billion as of June 12 from $12.3 billion on May 8.

Analysts said the country’s current account balance will be largely manageable if oil prices do not shoot up sharply from the current level. However, there will be concerns over balance of payments if Pakistan is not able to roll over debts from friendly countries, they said.

“If the country is unable to get Chinese debt rescheduled, there may be further repayments to the tune of $2 billion in current calendar year,” said an analyst. “Moreover, if the IMF delays reinstating the extended fund facility program, the country will find it next to impossible to draw foreign aid and debt, including Euro bonds.”