Rupee hits new all-time low of 170.48/dollar

KARACHI: The rupee hit an all-time low against the dollar on Wednesday as investors evaluated political and economic risk from upcoming IMF reviews on the bailout package after US senators seek assessment on Pakistan's role in the Taliban offensive that led to the toppling of the US-backed Afghan government.

The negotiations with the IMF for sixth and seventh reviews of the extended fund facility and the Article IV consultations for borrowing $1 billion will start on October 4.

The rupee battered third consecutive day, and the analysts and traders see downward pressure to continue at least in near-term.

The rupee closed at 170.48 to the dollar in the interbank market, a 0.30 percent weaker than Tuesday’s close of 169.97. In the open market, the rupee ended at 172.50 versus the greenback, compared with 171.80 in the previous session.

A treasury head said the primary reason for the continual slide in the rupee is import payment pressure.

“The several letters of credit (LCs), opened by banks under the central bank’s concessionary lending scheme for new investment known as Temporary Economic Refinance Facility, are disbursing and the businesses are importing industrial goods to establish new factories and expand the existing ones,” he said

Khurram Schehzad, the CEO of Alpha Beta Core said the central bank is in the market to support the rupee “when it feels it is appropriate”.

“The SBP (State Bank of Pakistan) is following a market-driven approach, but if it intervenes in the market to arrest the rupee’s decline, it could be a setback for the (IMF) review naturally,” Schehzad said. “The imports are also increasing and the government and the central bank have taken steps to reduce overheating in the economy gradually. If it takes immediate measures it would choke the economy. “

Analysts fear Pakistan stands to lose a lot because iof US senators move as the country stands on the brink of negotiating terms with IMF for its upcoming tranche while the fate of the FATF decision is also looming around. Muzammil Aslam, CEO of Tangent Capital said the exchange rate appreciation trend has been reversed since May 2021 where the currency has dropped almost 12 percent from the low of 153 to 170.

“The depreciation in the currency is led by an increase in trade deficit or higher import bill. The import is driven by two factors higher GDP growth expected to cross 5 PC of GDP and the skyrocketing global commodity prices,” Aslam added.

These prices in the past two months have gone crazy energy prices, food prices, and industrial goods prices. Moreover, the cost of shipping has gone up almost 8 times from last year. This is also reflected on the balance of payments side.

The central bank has been following a flexible exchange rate policy in order to give a cover of its hard-earned foreign exchange reserves, which is currently hovering at an all-time high level of Pakistan history. The policy is to protect the reserves in order to ensure sustainability as well as growth sustainability.