Karachi August 29 2022: Pakistan Rupee drops 1.78 rupee in the interbank against the dollar for the fifth consecutive day as U.S dollar surged to a 20-year high against a basket of currencies on Monday after Federal Reserve Chair Jerome Powell signaled interest rates would be kept higher for longer to bring down soaring inflation.
The situation is more aggravated by lifting of ban on luxury items and shortages of foreign currency in the open market amid declining reserves.
In the open market, the dollar is up rupee 5.0 and trading at 235 at PST 11:30, as per Forex Association of Pakistan.
In previous week, Pakistan lifted the ban imposed on imports of 33 categories of the goods covering 860 tariff lines, in order to meet the final requirement of the International Monetary Fund (IMF). Government also allowed to gradually release the goods stuck at the ports with penalty surcharge of up to 100% of assessed value.
“The decision to ban luxury items had helped to contain the imports, as the trade deficit had so far shrunk by 30% during the current fiscal year” says Pakistan’s Finance Minister Miftah Ismail.
“Currency dealers said that the latest development has created a shortage of foreign currency, particularly the UAE dirham as each Pakistani needs to declare 5,000 dirhams at the UAE airport at the time of landing this week, and ultimately exportable currencies declined,” says Malik Bostan president of the forex association.
FX reserves have halved from $16.4 billion in February to $7.8 billion on August 19th, as official inflows have been outpaced by official outflows. The drying up of official inflows—namely multilateral, bilateral, and commercial borrowing as well as Eurobond and Sukuk issuance—was in large part due to the delay in completing the review of the IMF program because of policy slippages. Meanwhile, on the outflows side, debt servicing on foreign borrowing continued as repayments came due
The dollar index scaled to a fresh two-decade peak of 109.44 in the Asia trade, with greenback strength pushing other major currencies to new lows and putting pressure on its emerging markets counterparts after Federal Reserve Chair Jerome Powell signalled interest rates would be kept higher for longer to bring down soaring inflation.
The rupee depreciates by rupee 1.78 or 0.8% in today’s trading session to trade at 222.44 in the interbank at PST 13:30. In the last five trading sessions, Rupee dropped by approximately 3.5%. Still, Rupee is up approximately 7.9% from its low hit on the 28th of July 2022 as the country inching toward an IMF deal.
The REER index depreciated to 93.2 in July 22 as compared to 94.0 in June 22.
However, the situation of forex market likely to improve as the International Monetary Fund (IMF) Executive Board meeting for the combined seventh and eighth reviews under the Extended Fund Facility (EFF) has been set for today August 29th, 2022. Approval of this will release $1.17 billion for Pakistan and provide comfort to other lenders that help in arranging gross financing needs of more than $30 billion for this year.
