July 28, 2022
ISLAMABAD – The rupee continued to slide against the dollar on Wednesday, hitting another low of Rs237 in the interbank market.
According to the Forex Association of Pakistan (FAP), the local currency fell Rs4.07 to Rs237 from yesterday’s close of Rs232.93 at 11:50am.
The rupee closed at 236.02, having depreciated 1.31 per cent, according to the State Bank of Pakistan (SBP).
— SBP (@StateBank_Pak) July 27, 2022
FAP chairman Malik Bostan highlighted that there was a need to increase dollar inflows as it would stabilise the rupee.
“The central bank should take strict measures against exporters who are not bringing back their proceeds to the country in due time,” he said.
He further stated that the local currency should be used for trade with Afghanistan as it would save $2 billion in foreign exchange.
Presently, Bostan continued, Pakistan’s inflows were short. “In such a situation, the transfer of $2 billion to Afghanistan [for imports] is increasing our difficulties,” he added.
Komal Mansoor, head of strategy at Tresmark, told Dawn.com that the pressure on the rupee would persist as long as there was a shortage of dollars.
“Exchange companies are offloading their inventory and selling dollars to the bank to bridge some gap but demand far exceeds supply,” she said, adding that “in a desperate move” banks were willing to buy dollars from exporters at a rate even higher than the interbank rate.
Meanwhile, Mettis Global Director Saad Bin Naseer was hopeful that the pressure on rupee would ease in the upcoming sessions ahead of inflows from the International Monetary Fund (IMF) and friendly countries
“Demand from importers has fallen significantly during July,” he said.
“As per the finance minister, total imports so far during July (as of July 25) have reached to only $3.7bn. This will alleviate demand-side pressures significantly and may even keep the current account balance in surplus for July,” he added.
The dollar has come under renewed pressure amid higher demand from importers. Bankers say the “import mafia” has practically drowned the national economy and is still insisting that more imports be allowed while the country is already on the brink of default.
Pressure on rupee to ‘vanish’ soon: Miftah
On Tuesday, Finance Minister Miftah Ismail said the pressure on the rupee would “vanish” in a couple of weeks.
In a one-on-one conversation with Mosharraf Zaidi, CEO of advisory services firm Tabadlab, Ismail said the inflows of dollars into Pakistan would soon be higher than the outflow, resulting in a stable exchange rate.
“Nobody is happy with surgery, but sometimes it’s necessary,” he said while defending his policy of import curtailment to reduce the dollar outflow — a measure that may slow down economic growth and reduce tax collection at the import stage.
He repeatedly insisted that the fears of a sovereign default were overblown and that the policymakers knew “all the balls that (they) have in the air” i.e. expected inflows of the foreign currency in the next quarter or so.
“This is what I’m trying to do: moderate our purchases (imports) and not slow down our exports. For two to three months, I’m going to do that. (With every passing) week, I have a greater handle on the foreign currency,” he said.
The country burned $80 billion last year to buy foreign goods and services while earning only $31bn against its exports. The resulting gap in dollar liquidity has put pressure on the rupee’s value, which has been depreciating against the greenback.
Ismail said a policy plan would soon be in place. Imports will go down gradually and exports will be up “organically” within three months, he said.
Rupee’s consistent decline
Between April 7 (when the then-prime minister Imran Khan was ousted from power) and July 22, the rupee lost 21.3 per cent value against the US dollar both due to the yawning trade deficit and the growing political instability and uncertainty.
The rupee had appreciated to Rs204.56 in the first week of July after touching 211.93 on June 22. It then kept losing its value against the dollar but registered a minor appreciation when the country reached its staff-level agreement with the IMF on July 15.
It has continued to fall in every session since then.
Last week, the rupee lost 8.25pc of its value against the US dollar within a week: it closed to an all-time low of 228.36 per dollar on July 22 from 210.95 per dollar on July 15.
By the end of last week, the local currency had lost 22.7pc since Jan 1 and 10.3pc since July 1.
In the opening session this week, the rupee further fell to Rs229.88. The rupee lost 1.31 per cent value against the dollar on Tuesday to close at 232.93 in the interbank market.