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August 11, 2020

Import payments drag rupee to record low of 168.38/dollar

Business

August 11, 2020

KARACHI: Rupee weakened to a record low at 168.38 against the dollar on Monday dragged by increased import payments, especially for oil, as well as worries whether Saudi Arabia would renew its oil payment deferment facility for Pakistan or not.

Domestic currency weakened 0.30 percent or 51 paisa to end at Rs168.38/dollar in the interbank market, compared with the previous close of Rs167.87 against greenback.

Previously, the rupee hit an all-time low of 168.30 against dollar on July 20, 2020. In the open market, the currency shed 60 paisa to end at 169 versus the dollar. “There were import payments for oil, which drove the local unit down,” said a currency dealer at a commercial bank.

“Being a lead importing country, after the smart lockdown lifted from today (Monday), the energy sector and general importers started importing goods into the country. Businesses have resumed operations after being shuttered in mid-March. This creates dollar demand in the market.”

Eman Khan, an analyst at Tresmark said traders were anticipating a spike in economic activity with a surge in imports as the lockdown ends.

“Selling rupee seems to be a safe bet. Given the uncertainty in global markets, it seems unlikely that the SBP will attempt a hard intervention that could risk a quick depletion of reserves,” Khan added.

However, Muzammil Aslam, a prominent economist, believes this renewed pressure was led by speculations related to debt repayment to Saudi Arabia and UAE on the back of some disturbance in foreign relations with Riyadh.

“There is nothing wrong with exchange fundamentally. Clarity on the news will normalise the exchange rate,” Aslam added.

Islamabad has been seeking an extension in a $3.2 billion Saudi oil facility on deferred payments. The government has approached Saudi Arabia for the renewal of the agreement between the two countries on this arrangement, which expired in May this year.

The Saudi Kingdom in November 2018 offered Pakistan a $6.2 billion package to help stave off an economic crisis. Out of the total $6.2 billion financing, a loan worth $3.2 billion was given to Islamabad in deferred payments for oil imports.

Pakistan has already repaid $1 billion of the Saudi loan, four months ahead of its repayment period. Faizan Ahmed, a head of research at BMA Capital said, “I think pressure has come mainly due to Pakistan's recent repayment of $1 billion to Saudi Arabia and problems in restarting the $3.2 billion deferred oil facility.” This, he said could put some pressure on Pakistan's forex reserves. “However, as Saudi funds are replaced with Chinese inflows, pressure on rupee should alleviate going forward,” he added.