Thursday June 30, 2022

Rupee weakens as oil importers step up dollar buying

By Our Correspondent
April 21, 2022

KARACHI: The rupee slid to its weakest level in the week on Wednesday on heavy dollar buying from oil importers and other companies, with revival of a loan talks with IMF that is expected to come with strict conditions further dragging the battered currency, dealers said.

The rupee closed at 185.92 to the dollar, down 0.80 percent from Tuesday’s close of 184.44 in the interbank market. It ended at 187.50 versus the greenback in the open market. It had finished at 186 in the previous session.

“The demand for the greenback remained high because of import payments, particularly oil, while the dwindling forex reserves and the ambiguity about the International Monetary Fund loan programme eroded investor confidence, driving the rupee down,” said a currency dealer.

“The market is apprehensive about the lack of foreign inflows and the rupee is likely to remain under pressure until the reserves are built up and steps are taken to tackle the balance of payments and fiscal deficit.”

With only enough cash in the central bank to pay for less than three months of imports, over $5billion of debt due in the remaining months of the current fiscal year and weak fund inflows, the country’s balance of payments position is undermining its ability to defend a tumbling rupee.

The market is also awaiting balance of payments data, likely to be issued later this week for further clue on the rupee’s future direction.

The current account deficit narrowed to $0.5 billion in February from $2.531 billion a month ago. However, the current account posted a deficit of $12.1 billion in nine months (July-February) of fiscal year 2021/22, compared with a surplus of $994 million in the same period last year.

The IMF raised its current account deficit forecast for FY2022 to 5.3 percent of gross domestic product versus 3.1 percent earlier, according to its latest World Economic Outlook.

A heavy dependence on imported energy means Pakistan has historically run a current account deficit, which it has funded by attracting foreign money into stocks, bonds and mostly from workers remittances.

After appreciating by 6.9 percent in FY21, the rupee depreciated by 14.3 percent against the US dollar from July to end-March 2022, in part due to pressures from the rising import bill, policy

normalisation among advanced economies, safe-haven effects associated with the Ukraine war, and political uncertainty.

Traders await the outcome of the IMF-Pakistan negotiations, which will continue till April 24.

The successful completion of the seventh review of the Extended Fund Facility would pave the way for the release of a $1 billion tranche from the IMF.

Out of the total IMF package worth $6 billion, the country has drawn $3 billion so far.

The country’s reserves have been drained by soaring imports and high debt repayments. Latest data showed total foreign currency reserves had declined to $17 billion in the week ending on April 8, down $450 million from the previous week.

The central bank’s reserves fell to $10.8 billion from $11.3 billion previously.

That has left the central bank with limited firepower to support the rupee. The SBP (State Bank of Pakistan can’t afford to defend the currency much with such little reserves,” a senior banker said.