Rupee slumps to lifetime low of 229.88/dollar

KARACHI: Battered rupee slumped to yet another lifetime low of 229.88 against dollar on Monday, with dealers and analysts pinning the blame on import payments amid severe shortage of greenback in the interbank market.

Domestic currency stood at 228.37 per dollar on Friday.

In the open market, the local unit shed Rs3 to finish at 230 against the US dollar.

“The central bank hasn’t been supplying dollars to the foreign exchange market even though it’s limiting the outflows. A bumpy demand for the US currency for energy imports and lack of inflows from the exporters and the remitters have played havoc with the rupee,” a currency dealer said.

Market insiders claimed that although the SBP had instructed banks to match outflows with inflows, there was a mismatch because not all banks were receiving comparable inflows to equal outflows.

Rupee has been one of the world’s worst-performing currencies, slumping 30.2 percent since the start of the year (2022).

Tahir Abbas, the head of research at Arif Habib Limited, said, “Shortage of dollars, political and economic uncertainty tagged with ambiguity regarding commitment from friendly countries, which is needed for disbursement of IMF tranche” were the reasons behind rupee’s persistent slide.

Political uncertainty due to the run-off Punjab chief minister elections continue to take a toll on the currency sentiments.

Ending July 22, the rupee experienced its worst week in more than two decades, showing investors anxieties amid concerns that a $1.2 billion loan disbursement from the IMF agreed last week might not be enough to ease the balance of payment crisis.

The country’s default fears over its foreign repayments still lurk in the market, despite the assurance of the SBP that Pakistan would comfortably meet its financing needs as an International Monetary Fund (IMF) loan programme remains intact.

Rupee plunged around 8 percent last week, marking the sharpest weekly fall since October 1998.

“We have completed the current review with the IMF, and we have successfully achieved the difficult task of receiving a staff-Level agreement from the IMF, by fulfilling all their requirements. Now, it should be much easier for us to get approval from the IMF Board to get the large-scale funding,” the SBP’s acting governor said. “We will also get some additional funding and oil-financing from friendly countries. So, Pakistanis should dismiss all the economic fears in their minds,” said SBP Acting Governor Dr Murtaza Syed in a recent podcast.

The rupee has depreciated very sharply, around 18 percent, since December 2021. However, 12 percent of this depreciation was caused on the back of US Fed-Reserve increasing its interest rates very aggressively, to increase the value of the dollar, according to the SBP.

Pressures on the rupee was also created due to rising imports and demand for dollars in Pakistan, while the supply of dollars has remained low due to geo-political and domestic uncertainties.

SBP Deputy Governor Dr Inayat said Pakistan has nearly $9.3 billion in foreign exchange reserves. “We expect the imports to slow down gradually, so this gap in dollar-demand and supply will reduce. The foreign exchange market in Pakistan is functioning consistently, while SBP is vigilantly controlling this market to prevent disruptions or malpractices,” Inayat noted.

“Over the past few months, the global suppliers of oil and gas have begun demanding that; any letter of credit (LC) opened by a Pakistani bank, must be reconfirmed by an international bank, therefore, the importers of oil and gas in Pakistan were facing some difficulties in their Import LC procedures. However, this situation has improved significantly now.”