Rising political noise over the no-confidence motion against Prime Minister Imran Khan and uncertainty over the International Monetary Fund (IMF) programme kept the rupee under pressure, which recorded a decline for the sixth consecutive session against the US dollar, depreciating 0.38% in the inter-bank market on Monday.
As per the State Bank of Pakistan (SBP), the rupee closed at a new record low of 181.25 after a day-on-day depreciation of 68 paisas.
The fall comes despite Pakistan witnessing a 78% reduction in its current account deficit in February.
During the previous week, the rupee lost value in all five sessions to hit record lows, and ended with a cumulative fall of 1.14% as the market came to terms with an uncertain political environment and expectations of a high import bill.
Rupee's woes continue against USD, ends week at record low
Oil prices, a major determinant of currency parity, jumped $3 on Monday, with Brent above $110 a barrel, as European Union nations consider joining the United States in a Russian oil embargo, while a weekend attack on Saudi oil facilities caused jitters.
Brent crude futures climbed $3.44, or 3.2%, to $111.37 a barrel, while US West Texas Intermediate (WTI) crude futures rose by $3.54, or 3.4%, to $108.24.
In a positive development, Pakistan’s current account deficit registered a massive 78% decline month-on-month, clocking in at $545 million in February 2022, the lowest in the ongoing fiscal year, showed data released by the State Bank of Pakistan (SBP) on Saturday. In January, the deficit stood at $2.531 billion.
“However, the decline in CAD was not able to improve market sentiment, as the country is engulfed in political uncertainty, and lack of clarity at the International Monetary Fund (IMF) front, which has kept the local currency under pressure,” Fahad Rauf, Head of Research at Ismail Iqbal Securities, told Business Recorder.
The expert was of the view that the CAD of $500 million is not sustainable, and would go over $1 billion in the months of March and April. “The impact of rising commodity prices would be reflected in coming months,” he said.
On the other hand, the country’s foreign exchange reserves have declined, creating further pressure on the local currency.
“Pressure on rupee would remain till clarity on political and IMF fronts are not attained,” he said, adding that the currency could hit 183 in the coming days.
The story was originally published in Business Recorder on March 21, 2022.