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Sunday April 21, 2024

Rupee slides amid uncertainty over IMF deal

By Our Correspondent
May 26, 2022

KARACHI: The rupee fell for an eleventh straight session on Wednesday amid uncertainty over an International Monetary Fund (IMF) deal, dealers said.

In the interbank market, the rupee ended at 201.92 per dollar, 0.25 percent weaker than Tuesday’s close of 201.41. The domestic currency fell by one rupee against the dollar in the open market. It was trading at 203 versus the greenback.

The rupee extended its slide for an eleventh consecutive session on Wednesday as investors doubted whether Pakistan would reach a staff level agreement with the International Monetary Fund for resuming lending under a.

The talks with the IMF to revive $6 billion loan programme agreed in 2019 are likely to conclude in Doha later today (Wednesday). The IMF assistance has been stalled since a disagreement with the previous government over energy subsidies in late February.

Pakistan is facing a fast depletion of foreign exchange reserves and analysts warned that the country is at risk of defaulting on its external debts.

The mounting political unrest after the former prime minister Imran Khan has started a march towards the capital city of Islamabad to force early elections has shaken investor’s confidence in the economy, putting pressure on the local unit.

“Rupee records a new low against dollar at 201.92 amid uncertainty with respect to IMF programme talks which are expected to conclude today,” said Tahir Abbas, the head of research at Arif Habib Limited. “Also, political uncertainty in the country is adding to the pressure on the currency.”

The country needs foreign inflows to bolster its forex reserves, which have fallen to $10.2 billion, enough to meet the cost of less than two months of imports.

The country is struggling with a soaring trade deficit fueled by higher imports. And, the rising yields on Pakistan international bonds indicate investor concern on the precarious country’s balance of payments position and increased risk that borrowers may face problems in future meeting external obligations if worsen further.

These fears have led to the weakening of the local unit, which has depreciated by 18 rupees since the ruling coalition took office last month.

The fast weakening of the currency has also stoked inflationary pressures, which surged to 13.4 percent in April from 12.7 percent in the previous month.

The market is clueless about the outcome of the IMF talks as getting a loan from the multilateral lender might force the government to take the politically difficult and unpopular decision of raising fuel and electricity prices.