Karachi August 25 2022: Pakistan Rupee drops 61 paisa in the interbank against the dollar as government lifts ban on luxury items amid shortages of foreign currency in the open market and higher number of current account deficit for the month of July.
In the open market, the dollar is up rupee 2.75 and trading at 228.75 at PST 12:15, 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.
The current account deficit recorded at $1.2bn in July 2022 despite a sharp decline in energy imports and ban on luxury items for moderation in other imports. SBP data reflects $392 million more payments than the actual imports of the country which is likely due to delay in clearance of LCs. The wider gap is recorded in the payment for oil which are $984 million higher when compared with actual imports of $1.4bn in July 2022.
The U.S. dollar index dollar, which measures the currency against six rivals including the euro, drops 0.52 or 0.48%. However, still the dollar index is at five week high versus major peers as Federal Reserve officials flagged the likelihood of continued aggressive monetary tightening ahead of the central bank’s key Jackson Hole symposium this week.
The rupee depreciates by 61 paisa or 0.3% in today’s trading session to trade at 218.99 in the interbank at PST 12:15. In the last three trading sessions, Rupee dropped by approximately 2.0%. Still, Rupee is up approximately 9.4% 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 August 29th, 2022, according to an IMF representative. 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.
