KARACHI:
Pakistani currency on Friday remained largely stable at slightly above Rs285 against the US dollar in the inter-bank market, as it continued to fluctuate around that level throughout the outgoing week.
According to State Bank of Pakistan’s (SBP) data, the rupee ticked down 0.04%, or Rs0.10, on a day-on-day basis and closed at Rs285.37 against the greenback.
Market talk suggests that the currency stayed in the positive territory for most of the day but lost some ground towards the close. It was the second consecutive working day when the market observed the same trend, cumulatively losing a meagre 0.08%, or Rs0.24, in the rupee value over two days.
The Exchange Companies Association of Pakistan (ECAP) on Friday revised down the rupee-dollar parity by Rs0.50 to Rs286.50 in the open market.
The rupee edged down after two related major developments including the fall in SBP-held foreign exchange reserves by $217 million on a week-on-week basis to $7.2 billion.
The reserves were already at a low level of less than two months of import cover. The latest drop in reserves has the potential to further weaken the currency in the absence of foreign currency inflows from international creditors and investors.
Read Rupee halts winning streak on dollar demand
Secondly, caretaker Finance Minister Dr Shamshad Akhtar a day ago termed Pakistan’s foreign debt unsustainable, pressing policymakers to undertake structural reforms to control the debt pile and create more room for economic activities.
Almost one-third of the revenue to be generated by the Federal Board of Revenue (FBR) will go to interest payments in the current fiscal year 2023-24, leaving a very little fiscal space for executing development projects. This development stands negative for the rupee-dollar parity.
Market talk indicates that the rupee is stabilising around current levels with an end to speculative activities in the currency market after the government imposed a 40% tax on the windfall income of banks earned from rupee-dollar trade in the previous two years ie, 2021 and 2022.
An expert cautioned recently that the rupee should stabilise around current levels, as “it lacks room for further gains”.
The prevailing high inflation is technically weakening the rupee. In addition to that, little inflows of foreign currency did not provide support to the rupee, as demand for the greenback surpassed its limited supply, he said.
The rupee may remain under pressure till inflation decelerates to the targeted range of 5-7% in the long run (by fiscal year 2025) and the country receives significant inflows such as billions of dollars in Saudi investment in the Reko Diq copper and gold mining project and for setting up an oil refinery.
Published in The Express Tribune, November 25th, 2023.
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