Rupee pares losses after touching new all-time low

KARACHI: The rupee sank to an all-time low of 176.42 to the dollar on Friday before paring losses on increased import payments and a sharp decline in the country’s foreign exchange reserves, dealers said.

Rupee weakened 0.82 percent or 1.42 rupees in an intraday trade before closing at 175.46. The rupee last slid to a life-time low of 175.73 versus the greenback on November 12.

“Importers, especially from the oil sector, stepped up dollar purchases to make their payments,” said a foreign exchange dealer. “The persistent fall in the country’s forex reserves amid increasing foreign debt repayments also dampened the sentiment.”

Dealers said the Saudi inflows under the pledged financial support package, which are likely to boost the country’s dwindling reserves, have not been received yet.

Pakistan’s foreign currency reserves dropped last week by $777 million or 3.3 percent to $22.7 billion, their lowest since April 2021. Reserves held by the State Bank of Pakistan fell by 4 percent or 691 million to $16.3 billion, the lowest level since June 25. The SBP’s reserves are sufficient to cover 2.72 months of imports.

Last month, Saudi Arabia announced $3 billion cash deposits to shore up Pakistan’s foreign reserves and provide funding of deferred oil supply for $1.2 billion.

“Going forward, with the deposit coming in from KSA, as well as disbursements from the IMF and multilateral funds in Jan21, issuance of Eurobond/Sukuk and lower oil and commodity prices, we expect volatility in the parity to be contained and witness some strengthening in the local currency,” said Tahir Abbas, the head of research at Arif Habib Limited.

The rupee traded a record low of 179.50 against the dollar in the open market. It closed at 179/dollar, compared with 178 in the previous session.

Zafar Paracha, the general secretary of the Exchange Companies Association of Pakistan said the market was expecting a strong rupee after the government announced that the country would receive $3 billion from Saudi Arabia this week.

“In a sharp contrast, the rupee lost ground and didn’t react positively to the news,” Paracha said. “The SBP should crack down on forex speculative trading, which creates dollar shortage in the market, pushing the rupee down.”

The Real Effective Exchange RATE (REER) index fell to 95.6 in October, a decline of 0.3 percent compared with the previous month, the SBP reported. Cumulatively, REER has declined by 4.2 percent since June and 7.2 percent from its recent peak in April.