Rupee seen under pressure from depleting forex reserves

KARACHI: The rupee is likely to remain on the back foot next week on a persistent high importer demand and scant supply of dollars, while shrinking foreign currency reserves and mounting debts also intensified concerns about increasing balance of payment crisis, dealers said.

Rising current account and trade deficits, greater external debt payments, and drying dollar inflows are proving a toxic mix for the rupee, which hit a record low of 192.53 to the dollar in the interbank market on Friday. The local unit fell by 2.66 percent during the outgoing week.

“Dollar demand is expected to continue to outstrip greenback supply, and the currency is likely to see new record low levels,” said a currency dealer.

“However, any positive development on the IMF [International Monetary Fund] loan talks to be started on May 18 may help pull the rupee out of a slide back towards the lows,” he added.

The healthy remittance flows also failed to improve sentiment on the rupee.

Remittances from Pakistani citizens employed abroad rose to a record high of $3.1 billion in April. Total remittances in 10 months of this fiscal year rose to $26.1 billion, 7.6 percent higher than in the same period in 2020-2021.

The trade deficit of the country is increasing to an alarming extent which is putting pressure on the rupee.

At present, $2.5 billion worth of foreign exchange was being spent on import of fuel and gas while vehicles worth crores of rupees were being imported, dealers revealed.

The country's trade deficit jumped 65 percent to $39.3 billion in 10 months of this fiscal year amid higher imports. Oil sales clocked in at 2.2 million tonnes in April, compared with 1.672 million tonnes, up by 32 per cent year-on-year and 21 percent month-on-month. These sales on the back of high consumption has led to the rise in oil import bill and thus stressed the foreign exchange reserves and the currency.

Pakistan’s reserves fell $178 million to $16.376 billion during the week ending May 6, the central bank said on Thursday. The reserves dropped to their lowest level since December 2019.

The central bank reserves also fell to a 23 month low. The State Bank of Pakistan’s (SBP) reserves decreased by $190 million to $10.308 billion. Analysts said the reserves were enough to cover 1.54 months of imports.

The rupee has lost 18.17 percent since July this year.

The delay in release of IMF funds and the reluctance of Saudi Arabia, United Arab Emirates and China to rescue Pakistan before the go-ahead from the IMF is intensifying the country’s balance of payments woes.

The political temperature is also rising after the former Prime Minister Imran Khan warned he would march with his thousands of supporters to capital city Islamabad to demand new elections immediately.