Rupee sees new low: Bloodbath in stock market

KARACHI: The rupee closed to an all-time low of 176.42 against the dollar on Thursday as investors, worried about the outlook for the country’s economy amid the emergence of the new coronavirus variant and deepening concerns over the current account deficit, saw carnage at the KSE 100 index that recorded the 'third largest one-day loss ever' of 2,134.99 points or 4.71 percent. The rupee had ended at Rs175.48 to the dollar on Wednesday. A previous record low of Rs176.20 was set on Monday.

The rupee's historic plunge combined with Black Thursday's carnage at the KSE 100 index wiped off $1.9 billion, equivalent of Rs332 billion, in losses to investors in share values, due to economic fallout from blooming trade deficit and scares of another rate hike, dealers said. At the same time, gold rates in the local market increased by Rs850 per tola. According to the data released by the All Sindh Saraf Jewelers Association (ASSJA), gold rates in the local market moved up to Rs123,650 per tola. Similarly, 10-gram gold price also increased by Rs729 to Rs106,010. The drop in KSE, rupee value and rise in gold value completed the triple whammy for the country amidst the ruling negative sentiments. The country's debts increased by Rs2,300 bn while Euro, Pound similarly gained value.

The local currency fell one rupee against the dollar in the open market. The rupee traded at 178 versus the greenback, compared with 177 in the previous session. One foreign exchange dealer said: “We saw a fresh increase in the demand for the greenback in the market because the investors assessed the risk associated with the Omicron variant. They feared the country braces for a lockdown if any case is detected.

This could pose a threat to the economic growth’s prospects.” He added: “Any disruption in the global supply chain could fuel the inflationary pressures.” The government has expanded the Covid-19 vaccination drive amid fears of the Omicron. It also banned inbound travel to Pakistan from seven countries where the infection cases had been reported.

The macroeconomic fundamentals have also hurt the domestic currency. The country reported the highest-ever monthly trade deficit of $5.1 billion in November. Exports rose 34 percent year-on-year to $2.9 billion, while imports soared 95 percent YoY to $8 billion. Trade gap climbed 117 percent to $20.8 billion in the five months of this fiscal year with exports reaching $12.4 billion and imports $33.1 billion, respectively. The high current account deficit caused by burgeoning import bill is expected to be a major drag for the currency.

Analysts see the current account gap in FY2022 to clock in the range of $13-14 billion, significantly breaching the SBP’s current forecast. There has been a gradual drip in foreign currency reserves due to the size of imports and servicing of the external debt. “In the absence of fresh inflows, we are seeing the rupee to be seesawed in the coming sessions,” said another dealer. “Any news that Saudi Arabia had placed $3 billion deposits with the SBP could provide some relief to the rupee,” he added.

Inflation has jumped to a 20-month-high of 11.5 percent in November. It stood at 9.2 percent in the previous month. The dealers said the State Bank of Pakistan is likely to raise the interest rates by 100-125 basis points at its next policy review this month to try to bring surging prices under control and to tackle the imbalance in the current account.

Malik Bostan, the Chairman of Exchange Companies Association of Pakistan (ECAP), said the rupee gave up gains due to some negative news coming regarding the tough and unpleasant conditions on which Saudi Arabia will provide $4.2 billion financing to Pakistan. “The conditions that a longtime ally Saudi Arabia can demand that Pakistan pay back the loan on 72 hours’ notice with or without giving any reason are worrying. Besides, in case of a dispute, the Saudi law will be applicable. These conditions affected the sentiment on the rupee,” Bostan said.

However, analysts see a pressure on the rupee is short-lived as the country expects to receive $7 billion in the next two months. These include $3 billion in deposits from Saudi Arabia, a $1.2 billion Saudi oil facility with deferred payments, a $800 million Islamic Development Bank oil facility, $1 billion to be raised through the issuance of Sukuk Bonds and $1 billion from the International Monetary Fund.