Rupee hits near 10-month lows on import payments

KARACHI: The rupee touched its weakest level in nine-and-a-half months on Monday, weighed down by increased dollar demand for import payments, as well as scanty inflows.

In the interbank market, the local unit extended its recent sequence of posting losses versus the greenback, closing at 163.67 to the dollar, its lowest since October 8, 2020. It ended at 162.43 on Friday.

The local unit depreciated by 0.76 percent or Rs1.24 against the dollar. Dealers said the pressure rupee has been facing since last month because of import payments, especially for oil, was sustained, with market forces dominating the movement.

The rupee is likely to lose more ground with the demand for hard currency expected to persist amid subdued dollar inflows. Besides, there are large oil payments lined up this week. Iflows from remittances and export proceeds were not sufficient to meet the importer demand, according to dealers.

The current account deficit clocked in at $1.64 billion in June, taking FY2021 number to $1.86 billion. An above than expected number for June was mainly due to economic recovery, higher machinery, food and petroleum imports, and rise in global commodity prices. The one-off import of defence equipment and vaccine imports was also made that month.

The rupee has fallen by 3.9 percent since July this year. “Today, the rupee remained under pressure due to short supply of the US dollars in the market and high demand for oil, machinery and vaccine imports. Increases in Covid cases and the partial lockdown in Karachi also have changed the sentiments of traders,” said Yaqoob Abubakar from Tresmark that tracks the financial markets.

The sharp decline in the rupee’s value came after official data on foreign trade showed Pakistan’s exports rose 17.3 percent to $2.35 billion in July from $2 billion a year ago. These are the highest ever exports in the month of July. Analysts see the stable position of US dollar against the basket of major currencies as one of the reasons for the weakness in the emerging markets’ currencies.

“The US dollar has been going up mainly due to strong US economic data and expectations of an earlier hike in interest rates by the Federal Reserve. The jobs’ data was pretty good for the month of June 2021 and strong numbers are expected for July 2021, wages have also been increasing in the US,” said Mustafa Mustansir, the head of research at Taurus Securities. “So, all pointing towards strong economic recovery in the US,” he added. However, the dollar index eased 0.15 percent to 91.97 on Monday, from 91.77.

The rupee dropped by 0.92 percent or Rs1.50 against the dollar in the open market. It ended at 164.20 per dollar, compared with 162.70 in the previous session. The country’s import bill is likely to go up further this fiscal year due to fast pace of economic recovery and acceleration in the coronavirus vaccinations, putting pressure on the foreign exchange reserves and domestic currency. The rupee/dollar parity is expected to close FY2022 within 165 -170 range, said Mustansir.